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For most 401K investors Vanguard funds are a better deal as expenses are low. But they have some annoying quirks. Wire money transfers are ridiculously slow.

They also have that pretty bizarre notion that you should put money into one of their fund for life. Trading is severely discourages and that's to certain extent OK, but Vanguard goes overboard with this idea.

Critics often say that Good ole' John Bogle wont be happy till the mutual fund companies earn fees of 0.1 %. That this man ruined the money mgmt. business. Singlehandedly walmartized it. This is not completely true. Because 0.5% fee is not 0.5% fee on annual return, it is the fee on the total amount of money invested. If your after inflation return is 2%, that means that mutual fund company takes 25% of your return for often questionable, second-rate services (as in Merrill Lynch) they perform. Yes 25% percent.

Moreover Vanguard should be hold responsible for the 2008 financial crash and "Great Recession" that followed on equal footing with other major Wall street players:

Financial holding companies like the Vanguard Group, State Street Corporation, FMR (Fidelity), BlackRock, Northern Trust, Capital World Investors, Massachusetts Financial Services, Price (T. Rowe) Associates Inc., Dodge & Cox Inc., Invesco Ltd., Franklin Resources, Inc., АХА, Capital Group Companies, Pacific Investment Management Co. (PIMCO) and several others do not just own shares in American banks, they own mainly voting shares. It these financial companies that exercise the real control over the US banking system.

Some analysts believe that just four financial companies make up the main body of shareholders of Wall Street banks. The other shareholder companies either do not fall into the key shareholder category, or they are controlled by the same ‘big four’ either directly or through a chain of intermediaries. Table 4 provides a summary of the main shareholders of the leading US banks.
 

In other words it is important to understand that they are not concerned with your retirement, their main concern is with their own retirement ;-)

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Old News ;-)

[Dec 27, 2015] This Junk Bond Derivative Index Is Saying Something Scary About Defaults

Bloomberg Business

Citigroup analysts led by Anindya Basu point out that spreads on the CDX HY, as the index is known, are currently pricing in an expected loss of 21.2 percent, which translates into something like 22 defaults over the next five years if one assumes zero recovery for investors. That is a pretty big number once you consider that a total of 41 CDX HY constituents have defaulted since the index really began trading in 2005, equating to about 3.72 defaults per year. A big chunk of those defaults (17) occurred in 2009 in the aftermath of the financial crisis.

What to make of it all? Actual recoveries during corporate default cycles tend to be higher than the worst-case scenario of zero percent. In fact, they average somewhere in the 26 percent range, which would imply 29 defaults over the next five years instead of 41.

So what? you might say. The CDX HY includes but one default cycle, and those types of analyses tend to underestimate the peril of tail risk scenarios (hello, subprime crisis). Citi has an answer for that, too. Using spreads from the cash bond market going back to 1991, they forecast the default rate over the next 12 months to be something more like 5 percent to 5.5 percent. (For comparison, the rating agency Moody's is currently forecasting a 3.77 percent default rate.)

[Dec 22, 2015] A Milestone For Vanguard: New Fund Could Include Junk Bonds

blogs.barrons.com

,,,,The Vanguard Core Bond Fund, unveiled in a filing with regulators on Monday, is being billed as an actively managed alternative to index funds like the Total Bond Market fund (VBMFX, VBTLX, BND). Its launch, slated for the first three months of 2016, would coincide with a period of great uncertainty in the bond markets. The Fed could mull its next interest-rate hike as soon as March.

... ... ...

Daniel Wiener, editor of the Independent Adviser for Vanguard Investors newsletter and a close watcher of all things Vanguard, was quick to note that the fund could invest in bonds of "any quality." The new fund's fine print shows leeway for Vanguard's portfolio managers to plunk up to 5% of the portfolio in junk bonds. Some 30% of the fund could fall into "medium-quality" bonds.

Vanguard's existing offering in junk debt, the Vanguard High-Yield Corporate Fund (VWEHX, VWEAX), is managed by Wellington Management Company.

Says Wiener: "Vanguard has never offered lesser-quality bond funds run by its internal group. The junk portion of the Core Bond product will be a first."

[Dec 13, 2015] While redemptions are elevated, particularly in high-yield bond funds, there doesn't seem to be a rush to for the exits

For the last several year buying "junkest junk" was a profitable strategy. Now it came to abrupt end.
Notable quotes:
"... The rest of the industry has been quick to say that while redemptions are elevated, particularly in high-yield bond funds, there doesn't seem to be a rush to for the exits. ..."
"... Goldman Sachs, for one, put out a note Friday warning Franklin Resources "is most at risk" given the large high-yield holdings of its funds, poor performance and large outflows. On Friday, its shares fell sharply. Meanwhile, there were unusually large declines Friday in the value of exchange-traded funds that track high-yield debt. ..."
"... The idea of a "run" on mutual funds might sound strange. Typically, runs are associated with highly leveraged banks engaged in maturity transformation, funding long-term loans with short-term debt. Nearly all the programs designed to avoid destabilizing runs-from deposit insurance to the Fed's discount window to liquidity requirements-are built for banks. But unleveraged investors, including mutual funds, can also give rise to runs. That is because there is a liquidity mismatch in mutual funds that hold relatively illiquid assets funded by investors entitled to daily redemptions. ..."
peakoilbarrel.com
Jeffrey J. Brown, 12/13/2015 at 4:06 pm
Interesting WSJ article (do a Google Search for the title, for access). Last week, the Journal noted that Chesapeake bonds that traded at 80˘ on the dollar a few months ago were currently trading at 30˘ to 40˘ on the dollar. I suspect that there are some huge losses on the books of a lot of pension funds.

WSJ: The Liquidity Trap That's Spooking Bond Funds
The specter of a destabilizing run on debt is haunting markets

The debt world is haunted by a specter-of a destabilizing run on markets.

Last week, this took on more form even if there weren't concrete signs of panic. Only one mutual fund manager, Third Avenue Management, has said it would halt redemptions to forestall having to dispose of assets in a fire sale. The rest of the industry has been quick to say that while redemptions are elevated, particularly in high-yield bond funds, there doesn't seem to be a rush to for the exits.

Still, growing angst comes as the oil-price rout continues and the U.S. Federal Reserve appears ready to raise rates. This has investors worried-and starting to ask the fearful question: "Who's next?"

Goldman Sachs, for one, put out a note Friday warning Franklin Resources "is most at risk" given the large high-yield holdings of its funds, poor performance and large outflows. On Friday, its shares fell sharply. Meanwhile, there were unusually large declines Friday in the value of exchange-traded funds that track high-yield debt.

The idea of a "run" on mutual funds might sound strange. Typically, runs are associated with highly leveraged banks engaged in maturity transformation, funding long-term loans with short-term debt. Nearly all the programs designed to avoid destabilizing runs-from deposit insurance to the Fed's discount window to liquidity requirements-are built for banks. But unleveraged investors, including mutual funds, can also give rise to runs. That is because there is a liquidity mismatch in mutual funds that hold relatively illiquid assets funded by investors entitled to daily redemptions.

[Dec 12, 2015] David Dayen Is This The Beginning of the Crackup in High-Yield Corporate Debt

Notable quotes:
"... It cuts two ways. Junk ETFs such as JNK and HYG have badly underperformed their benchmarks, owing to buying and selling in an illiquid market to replicate an index. Whereas actively managed junk mutual funds have the flexibility to deviate from index holdings in ways that can add a couple of hundred basis points a year. ..."
"... Your apology is flawed because it assumes equal access to information among investors as well as assuming all investors have the same objective. Institutional investors have different goals than hedge funds for example. The people you refer to have been fleeced that's just ok with you. As to tea leaves the people have been steeped in recovery stories for years. ..."
"... Wait, so speculators are shorting big bond positions of distressed funds? No way, hope they aren't doing this to ETF's. Jeez, didn't see this coming. I guess having the positions of big ETF's published daily might assist the speculators. ..."
"... What I do remember (and I can't remember whether it was Spring of 2008 or earlier), was that HY spreads had gapped out at least a couple of hundred bps, and equities were still at or near all-time highs. I remember sitting in a meeting with a couple I-bankers, who chuckled ruefully "equities haven't a clue". ..."
"... The received wisdom on the Street is that the bond market is smarter than the equity market. And, at last in my career, it was true, at least as far as downturns went. ..."
naked capitalism
MikeNY December 12, 2015 at 6:41 am

Yes, junk is usually the canary in the coal mine. The HY market melted in the Summer of 2008, months before equities noticed what was going on. The question really is how much contagion there will be: how many CDS have been written on the distressed names, who holds them, etc. My instinct tells me that there are considerably less CDS on junk than were written on MBS, due to the smaller market, the lower liquidity and (supposed) credit quality. But how much has that changed since 2008? I dunno.

One thing I do know: it's like the movie "Groundhog Day". The Fed always overstimulates, and there always follows a crash. Are there any bubbles left to blow, to 'reflate' assets next time?

timmy December 12, 2015 at 9:39 am

Your remark on written CDS is important. While it may be difficult to get liquidity on distressed names, it is less so on credit tiers above that or on indices. I'm sure there is some on junk, yes, but the real opportunity for spec CDS is (perhaps, was) on the BBB space which is the largest category in the investment grade market and is more liquid. While it may take awhile for distressed trading to creep up the credit ratings to the larger and more liquid names (specifically, since the definition of liquidity seems to be important on NC: the size of the specific issues' float, approximated with average daily volume), they will also have larger moves because potential fallen angels are repriced aggressively in an unstable market. The other thing about CDS is that they are most often delta-hedged which requires dealers to sell proxy's as the CDS go deeper into the money. The one restraining factor is that once a crisis is in motion, I think its going to be difficult for specs to get more CDS on their books. This strategy is purely directional (this is not an ETF NAV arb), essentially owning out of the money puts with minimal cost of carry.

Jim Haygood December 12, 2015 at 1:39 pm

'Their investing strategy – putting high-risk investments into a mutual fund – seems like exactly what not to do.'

It cuts two ways. Junk ETFs such as JNK and HYG have badly underperformed their benchmarks, owing to buying and selling in an illiquid market to replicate an index. Whereas actively managed junk mutual funds have the flexibility to deviate from index holdings in ways that can add a couple of hundred basis points a year.

That said, both junk ETFs and junk mutual funds are offering daily liquidity, while holding underlying securities that may trade once a week, or have no bids at all. As David Dayen observes, this sets up the risk of a bank run when investors get spooked.

Take a look at the "power dive" chart of TFCIX (Third Avenue Focused Credit Fund) - Aiieeeeee!

http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=tfcix&insttype=&freq=&show=

Now the question is contagion. Morningstar shows that 48% of TFCIX's portfolio was below B rating, and 41% had no bond rating. Most junk funds don't have THAT ugly a portfolio. But when the herd starts to stampede, fine distinctions can get lost in the dust cloud from the thundering hooves.

Over to you, J-Yel. Do you feel lucky, cherie? Well, do you?

Mike Sparrow December 12, 2015 at 3:48 pm

There is no CDS. There just isn't less, there is none. The stock market has pretty much ignored it as well except that its move from 13000 to 18000 has temporarily stalled. I suspect by the spring, this will be old news.

I think we make errors here, not understanding this particular type of financial speculation is "anti-growth" in general. This would probably blow most of the minds on this board.

Keith December 12, 2015 at 7:27 am

Many years ago when Alan Greenspan first proposed using monetary policy to control economies, the critics said this was far too broad a brush.

After the dot.com crash Alan Greenspan loosened monetary policy to get the economy going again. The broad brush effect stoked a housing boom.

When he tightened interest rates, to cool down the economy, the broad brush effect burst the housing bubble. The teaser rate mortgages unfortunately introduced enough of a delay so that cause and effect were too far apart to see the consequences of interest rate rises as they were occurring.

The end result 2008.

With this total failure of monetary policy to control an economy and a clear demonstration of the broad brush effect behind us, everyone decided to use the same idea after 2008.

Interest rates are at rock bottom around the globe, with trillions of QE pumped into the global economy.

The broad brush effect has blown bubbles everywhere.

"9 August 2007 – BNP Paribas freeze three of their funds, indicating that they have no way of valuing the complex assets inside them known as collateralised debt obligations (CDOs), or packages of sub-prime loans. It is the first major bank to acknowledge the risk of exposure to sub-prime mortgage markets. Adam Applegarth (right), Northern Rock's chief executive, later says that it was "the day the world changed"

10th December 2015 – "Moments ago, we learned courtesy of the head of Mutual Fund Research at Morningstar, Russ Kinnel, that the next leg of the junk bond crisis has officially arrived, after Third Avenue announced it has blocked investor redemptions from its high yield-heavy Focused Credit Fund, which according to the company has entered a "Plan of Liquidation" effective December 9."
When investor's can't get their money out of funds they panic.

Central Bank low interest rate policies encourage investors to look at risky environments to get a reasonable return

Pre-2007 – Sub-prime based complex financial instruments
Now – Junk bonds

The ball is rolling and the second hedge fund has closed its doors, investors money is trapped in a world of loss.

"Here Is "Gate" #2: $1.3 Billion Hedge Fund Founded By Ex-Bear Stearns Traders, Just Suspended Redemptions"

We know the world is downing in debt and Greece is the best example I can think of that shows the reluctance to admit the debt is unsustainable.

Housing booms and busts across the globe ……

Those bankers have saturated the world with their debt products.

Keith December 12, 2015 at 7:29 am

Links (which will probably require moderation)

Skippy December 12, 2015 at 7:41 am

Quality of instruments impaired by corruption has a more deleterious effect than quantities of could ever imagine…

David December 12, 2015 at 10:33 am

"Those bankers have saturated the world with their debt products."

I'm no apologist for Banksters but people bought this "stuff" as the Stuffies.

whether you call it greed or desperation in the face of zero yield – at the end of the day the horizon was short since the last debacle.

getting 2 & 20 or whatever the comp arrangement was for those who are motivated by greed – 2% of $2 Billion yields at least $40 million a year for 5 years or $200 million – not bad for ten guys or less – obviously not fiduciaries – bouncing from Bear to Tudor to Third Ave with no change in the model yields predictable results

I put forth the proposition the "people" deserve their fate – the tea leaves were all there to see

tegnost December 12, 2015 at 10:52 am

Your apology is flawed because it assumes equal access to information among investors as well as assuming all investors have the same objective. Institutional investors have different goals than hedge funds for example. The people you refer to have been fleeced that's just ok with you. As to tea leaves the people have been steeped in recovery stories for years.

Ian December 12, 2015 at 2:24 pm

Also fails to recognize the collateral damage caused towards the people that did not directly participate. It is very hard to say that they deserve their fate in this context, in that they were largely powerless to stop it to begin with, at a reasonable level.

Ian December 12, 2015 at 2:29 pm

I guess you qualified that with focusing solely on the people who bought it. Did not read fully.

Timmy December 12, 2015 at 8:34 am

Wait, so speculators are shorting big bond positions of distressed funds? No way, hope they aren't doing this to ETF's. Jeez, didn't see this coming. I guess having the positions of big ETF's published daily might assist the speculators.

Jim Haygood December 12, 2015 at 4:25 pm

Yesterday HYG closed at a 0.76% discount to NAV, while JNK closed at a 0.68% discount (values from Morningstar). These are wider discounts than ETF managers like to see.

The arbitrage mechanism of buying the discounted ETF shares, redeeming them for the underlying, and then selling the bonds at full value for an instant 0.76% gain is supposed to kick in now.

But sell … to whom?

Timmy December 12, 2015 at 4:51 pm

The misperception is that the ETF junk trade is an arb right now. Its not, its directional. The discipline to bring NAV's in line with underlying value will only kick in at much wider levels because traders are still long (and putting on more of) the "widener" because they anticipate higher levels of vol going forward.

tegnost December 12, 2015 at 9:15 am

Actually have already been bracing myself as demand for labor fell off a cliff at the end of sept., and I'm guessing it's stories such as this that makes my customers tighten their belts....

nat scientist December 12, 2015 at 9:55 am

"Some say the world will end in fire
Some say in ice
From what I've tasted of desire
I hold with those who favor (fire) INFLATION
But if it had to (perish) REFINANCE twice,
I think I know enough of (hate) ZIRP RATES
To say that for destruction (ice) NO BID
Is also great
And would suffice."

Marty Whitman now gets Robert Frost.

craazyboy December 12, 2015 at 4:26 pm

All those junk companies could just declare bankruptcy and start over. That's the way it's supposed to work. Just ask The Donald. Then it would be like that movie where Bruce Willis saved the earth from an asteroid strike. 'Course there was only one asteroid in that movie. Instead, we have World War Z with zombies all over the place!

But maybe JYell will buy all the junk bonds, burn them, and then the dollar will crash and we can all get jobs?

Christer Kamb December 12, 2015 at 1:44 pm

MikeNY said;

"The HY market melted in the Summer of 2008, months before equities noticed what was going on."

Not really. HYG market were in a downtrend during summer of 2007, together with the stockmarket. Also in the 2008 summer both markets were in a severe meltdown. This time around the HYG´s started their downtrend from summer 2014 with the 1:st leg down to dec same year. 2:nd leg is now running in which the stockmarket joined.

Your right, HYG´s seems to be the canaries here! But, from august this year they seems to go in different directions. Or are they?

MikeNY December 12, 2015 at 4:25 pm

You're right, it was earlier than Summer 2008, now I think about it.

What I do remember (and I can't remember whether it was Spring of 2008 or earlier), was that HY spreads had gapped out at least a couple of hundred bps, and equities were still at or near all-time highs. I remember sitting in a meeting with a couple I-bankers, who chuckled ruefully "equities haven't a clue".

The received wisdom on the Street is that the bond market is smarter than the equity market. And, at last in my career, it was true, at least as far as downturns went.

[Dec 04, 2015] Wolf Richter "Distress" in US Corporate Debt Spikes to 2009 Level

Notable quotes:
"... By Wolf Richter, a San Francisco based executive, entrepreneur, start up specialist, and author, with extensive international work experience. Originally published at Wolf Street ..."
"... Other high-risk credits, such as those backed by subprime mortgages, will follow. And the irony? Just in the nick of time, subprime is back – but this time, it's even bigger. Read… Subprime "Alt"-Mortgages from Nonbanks Run by former Countrywide Execs Backed by PE Firms Are Booming ..."
www.nakedcapitalism.com

December 3, 2015 | naked capitalism

By Wolf Richter, a San Francisco based executive, entrepreneur, start up specialist, and author, with extensive international work experience. Originally published at Wolf Street

nvestors, lured into the $1.8-trillion US junk-bond minefield by the Fed's siren call to be fleeced by Wall Street and Corporate America, are now getting bloodied as these bonds are plunging.

Standard & Poor's "distress ratio" for bonds, which started rising a year ago, reached 20.1% by the end of November, up from 19.1% in October. It was its worst level since September 2009.

It engulfed 228 companies at the end of November, with $180 billion of distressed debt, up from 225 companies in October with $166 billion of distressed debt, S&P Capital IQ reported.

Bonds are "distressed" when prices have dropped so low that yields are 1,000 basis points (10 percentage points) above Treasury yields. The "distress ratio" is the number of non-defaulted distressed junk-bond issues divided by the total number of junk-bond issues. Once bonds take the next step and default, they're pulled out of the "distress ratio" and added to the "default rate."

During the Financial Crisis, the distress ratio fluctuated between 14.6% and, as the report put it, a "staggering" 70%. So this can still get a lot worse.

The distress ratio of leveraged loans, defined as the percentage of performing loans trading below 80 cents on the dollar, has jumped to 6.6% in November, up from 5.7% in October, the highest since the panic of the euro debt crisis in November 2011.

The distress ratio, according to S&P Capital IQ, "indicates the level of risk the market has priced into the bonds. A rising distress ratio reflects an increased need for capital and is typically a precursor to more defaults when accompanied by a severe, sustained market disruption."

And the default rate, which lags the distress ratio by about eight to nine months – it was 1.4% in July, 2014 – has been rising relentlessly. It hit 2.5% in September, 2.7% in October, and 2.8% on November 30.

This chart shows the deterioration in the S&P distress ratio for junk bonds (black line) and leveraged loans (brown line). Note the spike during the euro debt-crisis panic in late 2011:

The oil-and-gas sector accounted for 37% of the total distressed debt and sported the second-highest sector distress ratio of 50.4%. That is, half of the oil-and-gas junk debt trades at distressed levels! The biggest names are Chesapeake Energy with $7.4 billion in distressed debt and Linn Energy LLC with nearly $6 billion.

Both show how credit ratings are slow to catch up with reality. S&P still rates Chesapeake B- and Linn B+. Only 24% of distressed issuers are in the rating category of CCC to C. The rest are B- or higher, waiting in line for the downgrade as the noose tightens on them.

The metals, mining, and steel sector has the second largest number of distressed issues and sports the highest sector distress ratio (72.4%), with nearly three-quarters of the sector's junk debt trading at distressed levels. Among the biggest names are Peabody Energy with $4.7 billion in distressed debt and US Steel with $2.2 billion.

These top two sectors account for 53% of the total distressed debt. And now there are "spillover effects" to the broader junk-rated spectrum, impacting more and more sectors. While some sectors have no distressed debt yet, others are not so lucky:

The biggest names: truck maker Navistar; off-road tire, wheel, and assembly maker Titan International; specialty chemical makers The Chemours Co. and Hexion along with Hexion US Finance Corp.; Avon Products; Verso Paper; Advanced Micro Devices; business communications equipment and services provider Avaya; BMC Software and its finance operation; LBO wunderkind iHeart Communications (Bain Capital) with a whopping $8.9 billion in distressed debt; Scientific Games; jewelry and accessory retailer Claire Stores; telecom services provider Windstream; or Texas mega-utility GenOn Energy (now part of NRG Energy).

How much have investors in distressed bonds been bleeding? S&P's Distressed High-Yield Corporate Bond Index has collapsed 40% from its peak in mid-2014:

US-SP-distressed-high-yield-corp-bond-index

In terms of investor bloodletting: 70% of all distressed bonds are either unsecured or subordinated, the report notes. In a default, bondholders' claims to the company's assets are behind the claims of more senior creditors, and thus any "recovery" during restructuring or bankruptcy is often minimal.

At the lowest end of the junk bond spectrum – rated CCC or lower – the bottom is now falling out. Yields are spiking, having more than doubled from 8% in June 2014 to 16.6% now, the highest since August 2009:

US-CCC-or-below-rated-yields-2011_2015-12-01

These companies, at these yields, have serious trouble raising new money to fund their cash-flow-negative operations and pay their existing creditors. Their chances of ending up in default are increasing as the yields move higher.

And more companies are getting downgraded into this club of debt sinners. In November, S&P Ratings Services upgraded only eight companies with total debt of $15.8 billion but downgraded 46 companies with total debt of $113.7 billion, for a terrible "downgrade ratio" of 5.8 to 1, compared to 1 to 1 in 2014.

This is what the end of the Great Credit Bubble looks like. It is unraveling at the bottom. The unraveling will spread from there, as it always does when the credit cycle ends. Investors who'd been desperately chasing yield, thinking the Fed had abolished all risks, dove into risky bonds with ludicrously low yields. Now they're getting bloodied even though the fed funds rate is still at zero!

Other high-risk credits, such as those backed by subprime mortgages, will follow. And the irony? Just in the nick of time, subprime is back – but this time, it's even bigger. Read… Subprime "Alt"-Mortgages from Nonbanks Run by former Countrywide Execs Backed by PE Firms Are Booming

BrianM, December 3, 2015 at 11:09 am
It is interesting that "distressed" in this article pretty much refers to pricing alone and says little about whether it actually represents a significant change in the ability of companies to repay/refinance their debts. The charts show a similar spike that happened in 2012 without any real consequence to default rates. Of course we are right to not trust the rating agencies as they are lagging indicators and there is a prima facie case for oil being a potential disaster area, but the article give no evidence as to why the markets are right this time. They've been wrong before.

The definition of distress is also somewhat arbitrary – 1000bps stinks of being a round number rather than any meaningful economic measure. 900bps sounds pretty distressed to me. Or, as a bull might put it, a bargain!

tegnost, December 3, 2015 at 1:07 pm
Question: What mechanism brought distress down after the euro crisis in late 2011, and is it possible that mechanism, whatever it was, will work again?
susan the other. December 3, 2015 at 1:43 pm

It's kinda like the post above on German domestic banks looking for profit from any rotten source. We are on the cusp of a new economy; keeping alive the old consumer/manufacturing economy is a dead end. ...

[Jul 29, 2015] Bill Gross Explains (In 90 Seconds) How Its All A Big Shell Game

07/29/2015 | zerohedge.com

"There is no doubt that the price of assets right now is a question mark... and ultimately when Central Banks stop manipulating markets where that price goes is up for grabs... and probably points down"

As Gross tweeted...

Gross: All global financial markets are a shell game now. Artificial prices, artificial manipulation. Where's the real pea (price)?

- Janus Capital (@JanusCapital) July 29, 2015

This clip carries a public wealth warning...

Jim Shoesesta

He is short, he is a loser, shell game or not.

ebworthen

Very rich loser.

And the markets are a .gov sanctioned and supported three card monti scamming folks all day, every day.

[Jul 29, 2015] Bill Gross Explains (In 90 Seconds) How It's All A Big Shell Game

07/29/2015 | zerohedge.com

"There is no doubt that the price of assets right now is a question mark... and ultimately when Central Banks stop manipulating markets where that price goes is up for grabs... and probably points down"

As Gross tweeted...

Gross: All global financial markets are a shell game now. Artificial prices, artificial manipulation. Where's the real pea (price)?

- Janus Capital (@JanusCapital) July 29, 2015

This clip carries a public wealth warning...

Jim Shoesesta

He is short, he is a loser, shell game or not.

ebworthen

Very rich loser.

And the markets are a .gov sanctioned and supported three card monti scamming folks all day, every day.

[Jul 27, 2015]Watching Yields Rise Are Treasuries a Buy

"...It's very conceivable for short-term rates to rise but long-term yields to decline if the market becomes convinced that Fed hikes will slow the economy. There's even a recent hint of that possibility looking at the action in treasuries since mid-July (the yield on 5-year treasuries has risen faster than yield on 10- and 30-year treasuries."
.
"...Finally, even if economic data is weak, there is a chance yields rise if inflation picks up. Thus, one needs to keep inflation in mind, especially over longer time-frames."
Jul 22, 2015 | Safehaven.com

Setting aside the often-heard "certificates of confiscation" phrase, treasuries are a reasonable buy if one believes yields are going to stay steady or decline. They are to be avoided if the expectation is for yields to rise.

Part of the question is whether or not the Fed hikes, and by how much. But it's more complicated than the typical "yes-no when" analysis that we see in the media.

It's very conceivable for short-term rates to rise but long-term yields to decline if the market becomes convinced that Fed hikes will slow the economy. There's even a recent hint of that possibility looking at the action in treasuries since mid-July (the yield on 5-year treasuries has risen faster than yield on 10- and 30-year treasuries.

I am still not convinced the Fed is going to hike this year. Much will depend on retail sales, housing, and jobs.

A good retail sales report will send yields soaring, likely across the board.

Finally, even if economic data is weak, there is a chance yields rise if inflation picks up. Thus, one needs to keep inflation in mind, especially over longer time-frames.

That said, the recent decline in crude, commodities in general, does not lend much credence to the notion the CPI is going to take big leaps forward any time soon.

All things considered, the long end of the curve seems like a reasonable buy here provided one believes as I do, that economic data is unlikely to send the Fed on a huge hiking spree, and that if and when the Fed does react, yields on the long-end of the curve may not rise as everyone seems to expect.

Anonymouse

Agreed ... any Fed rate hike will slow the economy, but they won't (can't) raise rates.

We have entered the black-hole of zero-interest, squarely caused by the incestuous relationship between the Fed and the Treasury whereby check-kiting and theft have become our central bankers' legal and institutional 'right.'

Through debt monetization, bond speculation has been made risk-free .. an anomaly in nature yet over 34 years in its bull cycle.

Risk-free bond speculation creates and maintains a falling interest rate structure which destroys the capital of virtually every market player. This is the greater danger .... which can only result in broad-based serial bankruptcies unless the parasitic system is abandoned for one that embraces sound money.

[Jun 12, 2015] Disaster Risk and Asset Pricing

Jun 11, 2015 | Economist's View
anne said...
https://personal.vanguard.com/us/funds/vanguard/all?sort=name&sortorder=asc#hist=upperTB%3ApyldTBI%3A%3AlowerTB%3AdailyTBI

June 11, 2015

* Vanguard yields are after cost. Federal Funds rates are no more than 0.25%.

[Jun 04, 2015] There is 'sheer panic' in the bond market

According to Bloomberg, bonds wiped out all their gains for the year. The benchmark US 10-year treasury yield pushed higher to about 2.42% overnight, a level it hadn't touched since October. German bund yields rose to about 0.99%.

There is chaos in global markets. Bonds sold off sharply on Thursday morning for a second day in a row. They've reversed the decline, but stocks are still lower, after the chaos spilled over.

... ... ...

The International Monetary Fund slashed US growth forecasts, and urged the Federal Reserve to delay its first interest rate hike until 2016, in a statement that crossed as the stock market opened.

In a speech last month, Fed chair Janet Yellen said it would be appropriate to raise interest rates "at some point this year" if the economy continues to improve.

In a morning note before the open, Brean Capital's Peter Tchir wrote: "It is time to reduce US equity holdings for the near term and look for a 3% to 5% move lower. The Treasury weakness is NOT a 'risk on' trade it is a 'risk off' trade, where low yields are viewed as a risk asset and not a safe haven."

The sell off in global bonds started Wednesday, as European Central Bank president Mario Draghi gave a news conference in which he said markets should get used to episodes of higher volatility.

Draghi also emphasized that the ECB had no intention to soon end its €60 billion bond-buying program, called quantitative easing, before its planned end date of September 2016.

Bond yields, which move in the opposite direction to their prices, spiked across Europe on Wednesday, and on Thursday this move is continuing, with German bund yields and US Treasury yields hitting new 2015 highs and continuing to climb overnight.

According to Bloomberg, bonds wiped out all their gains for the year.

... ... ...

The benchmark US 10-year treasury yield pushed higher to about 2.42% overnight, a level it hadn't touched since October. German bund yields rose to about 0.99%.

[May 12, 2015] An Open Letter to Bill McNabb, CEO of Vanguard Group

Economist's View
Stephen G. Cecchetti and Kermit L. Schoenholtz (sort of a follow up on the claim that financial reform is working -- perhaps -- but as noted in the post below this one there is more to do):
An Open Letter to Bill McNabb, CEO of Vanguard Group: Dear Mr. McNabb,
We find your WSJ op-ed (Wednesday, May 6) misleading, short-sighted, self-serving, and very disappointing.
Vanguard has been in the forefront of providing low-cost, reliable access to U.S. and global capital markets to millions of customers, including ourselves. Following the financial crisis of 2007-2009, the firm naturally should be a leader in promoting a more resilient financial system. Your op-ed sadly goes in the opposite direction.
Let's start with the most stunning example: your defense of money market mutual funds. MMMFs are simply banks masquerading as professionally managed investment products. Like banks, they engage in liquidity and maturity transformation. Like banks, they faced runs in 2008 that ended only when the federal government provided a guarantee that put taxpayers at risk. Even with that guarantee, the government still had to support many healthy U.S. corporations with household names that – having previously relied on MMMF purchases of their commercial paper – suddenly faced a severe credit crunch. And, to limit a fire sale amidst the crisis, the Federal Reserve had to provide special funding to buyers to help MMMFs unload their assets.
Unsurprisingly, fund sponsors and their clients – both creditors and borrowers – want to keep these opaque federal subsidies (especially the implicit guarantees that only become explicit and transparent in a crisis). Like them, you make the false, but popular claim that power-hungry regulators (who wish to limit the subsidies that make future crises more likely) are attacking (taxing!) Main Street instead of Wall Street.
In fact, the investment company industry captured its primary regulator long ago, and hasn't let go. The Securities and Exchange Commission's 2014 "reform" of MMMFs is exhibit A. It almost surely makes these funds more, not less, liable to runs (see here and here). And – what a surprise – Congress seems to find protecting U.S. taxpayers from contingent liabilities (like implicit financial guarantees to your industry) less attractive than the largesse of financial lobbyists. Even the voluminous Dodd-Frank Act didn't address MMMFs! :

After quite a bit more, they conclude with:

As the CEO of one of the largest mutual fund companies in the world that is dedicated to serving and protecting small investors, you should be in the vanguard of advocating reforms that enhance stability.
Instead of complaining about regulation under the guise of protecting Main Street, you should highlight the vulnerabilities in our financial system and make the case for efficient regulation that treats all activities equally. You should also promote investment vehicles that are likely to prove robust in a crisis, while warning about existing products that probably won't be.
Only greater resilience in the system can make investors confident that capital markets here and elsewhere will remain strong. That is in Vanguard's interest, too.
Sincerely,
Stephen G. Cecchetti and Kermit L. Schoenholtz
anne -> anne:

Stephen Cecchetti and Kermit Schoenholtz are intent on undermining the most important stock and bond investment vehicle for moderately wealthy investors. Vanguard sets the finest of examples for the entire investment industry.

pgl -> anne:

Maybe you are being paid by Vanguard but you are wrong. You are not qualified to comment on financial economics. Stephen Cecchetti and Kermit Schoenholtz are.

And they are not trying to undermine anyone. They are simply telling the truth. Repeat your garbage all you want but it is garbage.

mulp -> anne:

Anne, unless you call the FDIC bailout of the money market funds, and the Fed providing liquidity to them in 2008-9 totally wrong and you should have suffered losses in your holding in MMMF as they marketed to market (breaking the buck) and froze withdrawals until they could liquidate their holdings, or alternatively, declared bankruptcy, then you are totally bought into the free lunch economics of Friedman, Reagan, and all the bank lobbyists dependent on government handling the losses while they reap the profits.

I remember the debate in the late 60s and early 70s on money market funds. We (the People) were assured that MMFs would never be seen as banks by any one investing in them because everyone would know the MMF would someday lose value and in the process freeze the assets for some length of time until the fund could be liquidated.

In other words, not one person putting money in a MMF would see it as a bank that pays higher interest. More importantly, no business or corporation would ever confuse a MMF with a bank.

In 2008, it is clear that the promises made four decades earlier to allow unsophisticated investors access money market funds without lengthy notice of intent to withdraw funds was all a lie, or a belief in tinker bell, pixie dust, and free lunches.

The money market funds should have been left to collapse in 2008 to destroy all faith in them as safe for individuals to use, and in the process, "destroy trillions in wealth" held by tens of millions of upper middle class workers.

I would have lost more than I did in 2008, but the demand for greater government control of the financial sector plus greater social safety nets would have followed.

This is the first time I've seen someone besides me state that mutual funds are banks as we knew them in the 60s, except they pay nothing for the protection of FDIC and Federal Reserve membership.

anne:

http://www.nytimes.com/2015/05/10/your-money/fees-on-mutual-funds-fall-thank-yourself.html

May 9, 2015

Fees on Mutual Funds Fall. Thank Yourself.
By JEFF SOMMER

Wall Street is reaping mounting revenue from mutual funds and exchange-traded funds, yet investors are paying lower fees.

That sounds like a good deal for the millions of people who use the funds to invest their savings, and a great deal for the companies that run and sell the funds.

But that win-win situation is not quite as benign as it would seem. Many investors are still - often unwittingly - paying huge fees that cut into retirement savings.

A new Morningstar study offers an excellent explanation of what is happening. The report, "2015 Fee Study: Investors Are Driving Expense Ratios Down," found that, by one measure, mutual fund and E.T.F. fees paid by individual investors had dropped significantly - 27 percent - over the last 10 years. But it isn't mainly because Wall Street fund managers have been reducing fees. The study found that investors have been voting with their feet, moving money from expensive funds into cheaper ones, like index funds. That drives down the asset-weighted cost of mutual funds, skewing the statistics.

"It's not mainly thanks to the efforts of the fund companies," Michael Rawson, an author of the Morningstar study, said in an interview. "It's mainly because people have gravitated toward lower-cost funds."

There's a good reason for the migration to lower-cost funds: They tend to outperform higher-cost ones. As I've written recently, most actively managed mutual funds don't beat the market; those that do beat it rarely manage the feat consistently. Many consumers have gotten the message. Of the 100 lowest-cost funds on the market in March, 95 were index funds that merely try to match the market, not beat it, according to an unpublished study by the Bogle Financial Markets Research Center. Many investors have chosen index funds.

Yet because of the peculiar economics of the asset management industry, fund companies are still doing great. The companies that run the funds have been reaping outsize rewards because as fund assets have grown - thanks in part to the market's terrific performance over the last six years - the companies' own costs have declined.

That's because of economies of scale that the companies don't share fully with customers. "The cost of individual funds has dropped, but the assets have gotten so much bigger that the companies' revenue from fees has grown tremendously," Mr. Rawson said. "They could be sharing more of those revenues with consumers, but they're not."

Using publicly available documents, the Morningstar researchers estimated that in 2014, fee revenue from all stock and bond mutual funds and E.T.F.s reached a record high of $88 billion, up from $50 billion a decade earlier. Assets under management grew 143 percent, and industry fee revenue surged more than 75 percent. The asset-weighted expense ratio - the funds' publicly declared expenses divided by the actual money that investors put into them - declined, too, but only by 27 percent. "The industry - rather than fund shareholders - has benefited most," the report said. Mr. Rawson, a Morningstar analyst, wrote the report with Ben Johnson, director of global E.T.F. research at the company.

The details are fresh, but the economic machine that propels the asset management business has been whirring along for decades. In a telephone interview last week, John C. Bogle, the founder of Vanguard, the industry's low-cost leader, said that in some ways, running a fund company is like operating a factory. As you ramp up production, it becomes cheaper to produce additional items because important costs - fixed costs - don't rise.

For an asset management company, he said, a stock or bond portfolio is the core product and the intellectual exercise of selecting stocks and bonds for it is a fixed cost. "When you set up and run the portfolio, it's not much more expensive to do it when your fund has, say, $1 billion in assets, than when it had only $30 million," Mr. Bogle said.

"Unless you cut your fees drastically, you're going to generate a lot more money for your company as assets grow," Mr. Bogle said. "But do you think the industry wants you to understand that? Absolutely not. Most fund companies aren't passing those savings on to investors."

Vanguard, which is owned by shareholders of its funds, passes along most of the savings. Morningstar found that Vanguard's average asset-weighted expense ratio in 2014 was 0.14 percent, lower than any of the other top asset management companies and lower than 0.64, the current asset-weighted expense ratio for all funds.

Mr. Bogle says companies should charge a modest, flat fee for setting up a portfolio - not a percentage of assets, charged annually, which is the current practice - and give fund investors the rest of the money. That would not generate the splendid profits that asset management companies and their owners have enjoyed, however.

No wonder that in a rising market, shares of publicly traded asset management companies tend to outperform their own stock portfolios. For example, since the beginning of March 2009, the start of the current bull market, through April, the stock of BlackRock, the giant E.T.F. company, returned 27.1 percent, annualized, compared with 20.8 percent annualized in the iShares Core S&P 500 E.T.F., a BlackRock fund that tracks the Standard & Poor's 500-stock index, according to Bloomberg. You would have been better off investing in BlackRock, the company, than in its own S.&.P. 500 index fund.

Why should mutual fund and E.T.F. investors care about the economics of fund expenses? Because it's the dark side of compounding, a force that can be magical when it works in your favor:.

anne:

https://personal.vanguard.com/us/funds/snapshot?FundId=0040&FundIntExt=INT#hist%3A%3Atab=1&tab=1

Vanguard 500 Stock Index Fund

Average annual returns as of 3/31/2015

3/31/2014 ( 12.56%)
3/30/2012 ( 15.93)
3/31/2010 ( 14.29)
3/31/2005 ( 7.89)

08/31/1976 ( 11.05)


https://personal.vanguard.com/us/funds/snapshot?FundId=0028&FundIntExt=INT#hist%3A%3Atab=1&tab=1

Vanguard Long-Term Investment-Grade Bond Fund

Average annual returns as of 3/31/2015

3/31/2014 ( 14.54%)
3/30/2012 ( 8.42)
3/31/2010 ( 10.34)
3/31/2005 ( 7.49)

07/09/1973 ( 8.71)

anne -> anne:

This is what Vanguard has meant for modestly wealthy conservative long term investments since the 1970s. From Warren Buffett to David Swenson, the chief investment officer at Yale, Vanguard has been the recommended vehicle for ordinary stock and bond investors.

Harming Vanguard would be a tragedy.

anne -> anne:

"Harming Vanguard would be a tragedy."

The point is harming Vanguard would be harming the ordinary investors who in effect own Vanguard since Vanguard is indeed a "mutual" fund company, a company owned by fund investors.

Dan Kervick -> anne:

The well-being of modestly wealthy long-term investors is only one factor to consider in relation to the well-being of the entire US and global economy. Shouldn't we broaden the discussion?

anne -> Dan Kervick:

Vanguard forms a model for investment well-being in the United States.

Bob:

Anne, having liquidity requirements is not a tax on investors. When McNabb represents it as such, he is lying. There are no new fees or taxes imposed. It just requires that stock funds hold a percentage of assets in safe bonds in order to handle redemptions in panic situation rather than rely on taxpayer bailouts.

Investors are still entitled to 100% of the returns from the fund. Yes, it is true that the total return may be somewhat less because bond returns are typically less than stock returns. However, that isn't a tax or fee on investors.

Almost no investors maintain a 100% stock portfolio. The typical investor my have anywhere from 20% to 80% bonds. So with the liquidity proposal, some portion of the bond assets they hold anyway will be in their stock fund. They can adjust their stock vs bond allocation accordingly, taking into account the bonds held in their stock fund. After this adjustment, they will receive exactly the same total portfolio return as previously.

The idea that this is a tax or fee is simply a lie. Investors still receive 100% of their investment return.

Dan Kervick -> anne:


Well, it seems prima facie plausible that the ability of some firms to deliver very high returns at low cost is due to the amount they have invested in high-risk, high-yield assets. An economy filled with many such firms is going to be an economy with a higher level of systemic risk. If we want a financially safer world, then some rich people are going to have to get richer much more slowly than they did in the past.

JohnH: I don't believe Vanguard needs any liquidity requirements because none of its investments use leverage. If money is needed, they would just sell the assets at the current market value and disburse the proceeds.

MMMFs are a little different, because there is the presumption that that value of each share will always be $1, which it will be if short term treasuries are kept to term. In case of a run, the Fed could also buy the treasuries and keep them a few weeks to maturity, as they do under QE.

For funds that use leverage, the risk of a run is entirely different:

Longtooth:

My interpretation of Anne's issue is that she simply favors individualism's credo for the "moderately wealthy" over the rest of our society, and rationalizes her position by believing (in faith) that Vanguard is immune to failure and thus would not be a participant in any new liquidity meltdown, ergo the nation's taxpayers should shoulder the burden of for profit financial investors when such financial markets fail.

I'm not sure what Anne's position is/was related to the meltdown just past.. but she's caught on the horns of dilemma --- either taxpayer's bail out private investors or they suffer an even greater financial and economic calamity.

The whole point of Cecchetti & Schoenholtz open letter is that a) Vanguard is not immune, and b) taxpayers should NOT be placed on the horns of that dilemma again, and thus the Vanguard letter was indeed self-serving and misleading.

EMichael -> Longtooth:

Perfect.

McMike:

Well, the critiques may be technically accurate enough as far as they go.

But I fail to see how attacking one of the last pockets of low-fee, consumer-facing investment helps anyone in the long run, except those who wish to herd all money into complex, opaque, high-fee vehicles.

Money Market "reform" may have found some reasonable-sounding talking points on which to promote itself, but stepping back, one cannot help but see it is simply one more wave in the voracious plunder and elimination of any and all alternatives to the relentless and jealous Wall Street flim flam machine.

anne:

A democratic investment company is a company that is investor owned, that offers the finest quality long term stock and bond funds with minimal transactions or turnover at low management cost for investors with $10,000. For those men and women who prefer to deal with a Goldman Sachs, a suggest giving that company a call and finding the difference.

The idea that a Warren Buffett is paid by Vanguard for recommending Vanguard only shows a failure to understand that Vanguard is owned by investors and there are no payments made to financial advisers for recommending the company.

DeDude -> anne:

If you think the leadership if Vanguard is controlled by and serving its investors - then you need to get out of the Ivory tower a little more.

Leadership in any Wall Street company are always serving themselves first, second and third. It is just that some of them are better at hiding that fact than others.

DeDude:

As much as Vanguard is trying to sell itself as the investors friend on Wall street, their leadership is just as much a part of the Wall street vampire tribe as the rest of them. Yes, they suck less less blood from each victim, but they are still blood-suckers. When I see Vanguard offering a fund that restrict its investments to companies that compensate CEOs less than average (for that industry and size), then I will know they have left the blood-sucker tribe. The one product that would truly serve the interest of investors is not available from any investment company, because as useful as it would be for us it is dangerous for them.

anne:

The descent to profane and violent language on this thread, the descent to intimidation and bullying, is intolerable, horrifying, and meant only to destroy this thread and this blog.

EMichael -> anne:

Personally, I think the constant repetition of a Edwardian rant about language is "intolerable, horrifying, and meant only to destroy this thread and this blog."

As Keynes said, "words ought to be a little wild".

Syaloch -> EMichael:

Amen to that.

Syaloch -> anne:

Am I missing something? Neither "vampire" nor "blood-sucker" is profanity -- unless you mean it in the sense of blasphemous, i.e. criticism of something sacred.

Do you think that this "class of people" who work on Wall Street are holy deities and therefore beyond reproach?

You attitudes toward Vanguard certainly seem to point in that direction:

anne -> Syaloch:

These very terms were used to characterize and dehumanize a class of people in the 1930s. These are terrible, fearful terms to use to describe and stereotype people.

anne:

The use of profanity and a metaphor from the 1930s in describing a class of people is intolerable. Paul Krugman made a serious mistake in using a 1930s metaphor in description, both for the dismissing of the decency of the humanness of an entire class of people and for setting an example as to use of the metaphor.

Millions of people were methodically murdered during the 1930s in the wake of a campaign to stereotypically deny their decency, to deny their humanness by using dehumanizing metaphors to describe them.

likbez -> anne:

While behavior that you mentioned are unacceptable, a part of the blame is on you: you demonstrated a perfect example of the psychology of rentier, Anna.

Rentier capitalism is a term used to describe the belief in economic practices of parasitic monopolization of access to any kind of property, and gaining significant amounts of profit without contribution to society.


DeDude:

No, I think people are just having a little fun with your stuttering failure to address the issues. However, I will stop now (before being called a Nazi again – but don't think your bullying has worked, its just that I am tired)

DrDick -> DeDude:

Nothing I love more than passive-aggressive bullies, but that is Anne's schtick.

likbez

The key question to Anne is whether Vanguard is really better for unmanaged funds then ETFs. You need to provides us with solid evidence or all your post with belong to the category that Prince Hamlet defined as:

The lady doth protest too much, methinks.

And for managed funds Vanguard experienced several high profile disasters such as with their flagship Primecap fund around 2008. In this sense there is not much to talk about here. Thir managed funds is just a typical example of "go with the crowd" approach.

Issue of fees was important in 90th. But now IMHO Vanguard belongs to "also run" category: for each Vanguard fund you probably can find other fund or ETF with comparable fees.

So why you so adamant in defending Vanguard Anne? It' just one of Wall Street sharks which was broght to the surface by establishing 401K in 1978

P.S. I also consider Vanguard to be among more decent category of Wall Street sharks. But it is still a shark.

[Nov 20, 2013] Paul Krugman A Permanent Slump

November 18, 2013 | Economist's View

anne:

https://personal.vanguard.com/us/funds/vanguard/all?sort=name&sortorder=asc#hist=upperTB%3ApyldTBI%3A%3AlowerTB%3AdailyTBI

November 18, 2013

* Remember, the Vanguard yields are after cost. The Federal Funds rate is no more than 0.25%.

anne :

We should be aware that if the analysis of Paul Krugman and Lawrence Summers is reasonable and proves correct, however sadly so far as employment matters, we can expect the sort of interest rates we have had this year to persist for years. This is already the conclusion of knowledgeable bond holders.

[Aug 28, 2013] Vanguard's Best Bear Market Mutual Funds by Dan Culloton

Blast from the past. At the time of writing Dan Culloton was a funds analyst at Morningstar
Yahoo! Finance

Vanguard LifeStrategy Income (NASDAQ:VASIX - News)

This is a fund of funds that keeps most of its money in fixed-income portfolios: Vanguard Total Bond Market (NASDAQ:VBMFX - News) and Vanguard Short-Term Investment-Grade (NASDAQ:VFSTX - News).

But its equity stake can vary from 5% to 30% depending on the asset-allocation calls of Tom Loeb and his team at Vanguard Asset Allocation (NASDAQ:VAAPX - News), which gets 25% of assets here (Vanguard Total Stock Market Index (NASDAQ:VTSMX - News) accounts for the rest of stock holdings).

Loeb uses quantitative models to figure out how much of his portfolio to devote to S&P 500 stocks and the Lehman Brothers Long-Term Treasury Index, and his calls have been consistent and accurate over the years. (Currently Loeb's fund has about three fourths of its assets in stocks, so this fund's equity allocation hangs around 20%.)

That give this conservative fund a little upside potential, but it's really designed to preserve capital and generate income. The fund's bear market rank is better than 97% of its conservative-allocation category peers and in the third quarter through Aug. 28 it eked out a small gain that put it ahead of 96% of its peer group.

Investors who are further away from their goals or who are more risk tolerant can check out Vanguard LifeStrategy Conservative Growth (NASDAQ:VSCGX - News) and Vanguard LifeStrategy Moderate Growth (NASDAQ:VSMGX - News), which devote more money to equity funds and have done well in bear markets relative to their peers.

Vanguard Wellesley Income (NASDAQ:VWINX - News)

A colleague of mine recently told me that this portfolio, which keeps most of its money in bonds, was the first fund she ever bought. My first reaction was to say that it seemed awfully conservative for someone whose retirement was still decades off. She retorted that she was looking for a one-stop fund that wouldn't burn an inexperienced investor. Since then she has built a more age-appropriate asset-allocation plan around this fund, but she has never regretted her first purchase because the fund has been so reliable. It has lost money in just three of the last 20 years, has done better than 97% of its peers in bear markets, and has succeeded in delivering a steady stream of income with a portfolio of undervalued, high-yielding stocks and high-quality (mostly corporate) bonds. That the fund has held up well (better than nearly 90% of its conservative-allocation peers for the third quarter through Aug. 28) in the middle of a credit crunch with such a large corporate bond stake is testimony to the security-selection skills of long-time fixed-income manager Earl McEvoy and his team from Wellington Management. Wellington's John Ryan on the equity side is no slouch either. He's leaving the fund next year but has a seasoned understudy lined up in Michael Reckmeyer III. My colleague argues that there are worse newbie-investor mistakes than buying this fund, and I'd have to agree.

Vanguard Short-Term Tax-Exempt (NASDAQ:VWSTX - News)

This fund is cautious and consistent. Longtime manager Pam Wisehaupt-Tynan keeps the portfolio's duration, a measure of interest-rate sensitivity, low and its credit quality high. Low expenses allow the fund's conservative approach to work in its favor over time. Put too much of your portfolio here and you could run the risk of not keeping up with inflation or not seeing enough appreciation to meet your goals, but it can take the edge off a taxable portfolio. It's done better than 96% of its peers in bear markets and outpaced almost 80% of them in the current quarter through Aug. 28.

Vanguard Balanced Index (NASDAQ:VBINX - News)

Once again, simplicity and low costs work in a Vanguard fund's favor. A mix of 60% MSCI U.S. Broad Market Index (essentially Vanguard Total Stock Market Index ) and 40% Lehman Aggregate Bond Index has produced reliable absolute returns. It's done better than 86% of its peers in bear markets and has bested about four fifths of them so far in the third quarter. The fund's correlation with the overall market is higher, but it's still a solid core holding.

Vanguard Wellington (NASDAQ:VWELX - News)

This is another old stalwart managed by the redoubtable Wellington Management. In June, my colleague Chris Davis highlighted this one of Morningstar's favorite "sleep-at-night funds", or offerings that don't keep you awake at night wondering what they are doing. Since then the fund has acquitted itself relatively well.

It posted a 1.9% loss for the third quarter through Aug. 28, but that was still better than 82% of its moderate-allocation peers. Its long-term bear market rank also is still better than 86% of its rivals. And like its sibling Wellesley Income it has delivered consistent absolute results, losing money in just three of the last 20 calendar years.

Read more about Vanguard funds in our Vanguard Fund Family Report. To view a risk-free trial issue, click here.

Dan Culloton does not own shares in any of the securities mentioned above.

[Aug 21, 2013] Bond investing in a rising interest rate environment

August 14, 2013 | Vanguard
In this interview, Brian Scott, a senior investment analyst in Vanguard's Investment Strategy Group, discusses concerns about the bond market and explains why Vanguard believes bonds can play a crucial diversification role in your portfolio, even in the event of a significant downturn.

We're getting a lot of questions about whether bonds are headed for a bear market. What is a bond bear market, and how is it different from a stock bear market?

Listen to an audio recording of this interview "

It's an interesting question, because there is not a commonly accepted definition for a bear market in bonds. The answer for stocks is a rather simple one. There is a widely accepted, broadly used definition for a bear market in stocks, and that's a decline of at least 20% from peak to trough in stocks.

Now, if you tried to use that definition and apply it to bonds, we've never had a bear market in bonds. In fact, the worst 12-month return we've ever realized in the bond market was back in September of 1974, when bonds declined 13.9%. So we've never had a decline of the same magnitude as we've had in stocks, and I think that's one of the key differences between stocks and bonds.

Back to your original question then: What is a bear market in bonds? And, judging by investor behavior and reaction to losses in bonds, I think the answer is simply any period of time wherein you realize a negative return in bonds.

Is a bond bear market something we should be concerned about? If so, is there anything investors can do to prepare?

We've a great deal of sympathy for the anxiety that investors feel about the bond market right now. Typically, an investor that has an allocation to bonds-particularly those that have a large allocation to bonds-tend to be more risk-averse and become more unsettled when they see negative returns in any piece of their portfolio, let alone their total portfolio.

So we understand how unsettling this environment can be-and, in fact, we have actually realized a negative return in bonds. If you're looking at the 12-month return through the end of June 2013, bonds are now down about 0.7%-and when I say bonds, I'm referring to the Barclays U.S. Aggregate [Bond] Index. So, by that definition, and if you use the definition of a bear market I applied earlier, you could say-and some people have argued-that we are actually in a bear market in bonds.

And so it's unsettling; but, in times like these, what we encourage investors and their advisors to do is to look at the total return of their portfolio. And I think they'll feel much more comfortable when you take that perspective. As an example, an investor in Vanguard's Balanced Index Fund that has a mix of 60% U.S. stocks and 40% U.S. bonds realized a rate of return of 12% through June 30, 2013. So a total return perspective is especially valuable in times like this.

You recently co-wrote a research paper in which you note that in 2010, like today, investors also believed rising interest rates would cause bond losses, but that didn't happen. Does the experience of the last three years suggest anything about what investors should do now?

I think the last three years are very instructive and really impart a lot of lessons that investors can find very valuable in times like this. So for a little bit of historical perspective, back in about April/May of 2010, the yield on a 10-year Treasury note was about 3.3%. That was a level that was probably lower than almost all investors have ever seen in their investment lifetime. And you have to go back to August of 1957 to see yields as low as they were back in May of 2010.

And I think that perspective alone caused many people to assume that interest rates had to rise. And I think an important lesson from that environment and how the market actually reacted is that the current level of interest rates tells us absolutely nothing about their future direction. Just because yields are low doesn't mean that they can't go lower or that they must go higher. But at any point, in May of 2010, if you looked at what the market was pricing in and looking at forward yield curves, the market's expectation were that yields were going to rise, and the 10-year Treasury yield was going to rise to a level slightly over 4%.

In fact, what actually happened is that yields fell to just over 1.4%-again, I'm referring to the 10-year Treasury note. And if you had shortened the duration of your portfolio or moved your bond portfolio entirely into cash, you lost a tremendous amount of income.

I think another important lesson is that making knee-jerk reactions in your portfolio can be damaging over time and potentially even incur tax losses as well as higher transaction costs.

Do you have any thoughts about how to make the case that the smartest course of action is probably no action, assuming a portfolio is already well constructed?

That's a hard thing to do, because in the face of what you think is an impending loss in your portfolio, it's a very natural and even human reaction to feel like you have to do something. But we would argue, very strongly, that investors are best served by not changing their asset allocation unless some strategic element of their asset allocation has changed.

And, by that, I mean if your investment time horizon has changed, your investment objective has changed, if you really have an enduring change in your risk tolerance, then perhaps it's worth altering your strategic asset allocation. However, if those circumstances have not changed, you're probably best served by maintaining the strategic asset allocation that you set.

What are some indicators that your risk tolerance may be changing?

If you have extreme anxiety-let's face it, if you can't sleep at night, perhaps it's worth asking yourself whether your risk tolerance has changed. What we found-and we're not unique in this-is that investors tend to have a high level of risk tolerance when times are good and then when capital markets are delivering strong, positive returns. That changes sometimes over time. Now, we're not suggesting that you should frequently change your portfolio, but if you're really having a high level of anxiety over losses, perhaps it's worth becoming more conservative.

I think another way to react to the current environment is just to recognize the role that each asset class has in your portfolio. Stocks are designed to deliver strong capital gains-ideally, over the long term, above the rate of inflation so that you can grow your spending power over time. The role of bonds-at least the primary role of bonds, in our minds-is to act as a cushion or balance to stocks. Stocks tend to be much more volatile, much more prone to significant losses in bear markets in excess of 20%, and, when that happens, bonds tend to be an ideal cushion against equity market volatility.

It's very paradoxical. But perhaps, if you are feeling a higher level of anxiety because of the volatility in the fixed income markets in particular, the right answer for you might actually be a higher allocation to bonds. Because we actually think that because bonds are a good cushion to equity market volatility, over the long term, a higher allocation to bonds will reduce the total downside risk in your portfolio.

Investing can provoke strong emotions. In the face of market turmoil, some investors find themselves making impulsive decisions or, conversely, becoming paralyzed, unable to implement an investment strategy or to rebalance a portfolio as needed.

Discipline and perspective are qualities that can help you remain committed to your long-term investment programs through periods of market uncertainty.

Learn more "

Well, that's certainly counterintuitive. Despite what you just said, your paper does ask the question of whether investors should consider moving away from bonds.

Yeah, that's the most common question we're getting right now. There's a lot of interest in other instruments that we're calling bond substitutes. Now, there's not necessarily anything wrong with them. So I think the term might impose kind of a negative connotation on some of these bond substitutes, but people are viewing other higher-yielding investments as a potential substitute for the high-quality bonds in your portfolio.

Some of those substitutes that I'm referring to are things like dividend-paying stocks, some high-yield bonds, floating-rate bonds, etc. And one of the things that we're really encouraging investors to recognize is that, while these instruments have higher yields than high-quality bonds like you get with the Barclays U.S. Aggregate [Bond] Index or certainly with Treasury bonds, they do have a very different risk profile, particularly when equities are declining. When equities are doing very poorly, many of these bond substitutes actually act a lot more like equities than bonds.

So it sounds like attempts to reach for income could end up depressing your overall returns. Is that right?

Over the long term, we think the answer is absolutely yes, and we've done some work around this, and we've modeled what we think will be forward-looking returns of portfolios over the long term for balanced investors. And what we found is the higher your allocation is to equities, the larger the downside risk in your portfolio is over time. And that's also true if you move away from high-quality bonds and Treasury bonds, in particular, and invest your bond allocation in some of these bond substitutes we've been talking about.

Older investors may be worried about generating income in a low interest rate environment. Do you have any advice?

This may be the hardest question you've asked of all, because we have a tremendous amount of sympathy for investors in this situation, those who are older-or, really, frankly, anyone who's really dependent on their portfolio to produce income for them, to meet their current spending needs, because you're absolutely right. The traditional answers to providing income-high-quality bonds-are not providing the level of income that investors have grown accustomed to. We've actually referred to these investors-and, really, maybe more appropriately call them savers-as a sacrificial lamb of current monetary policy. The very low interest rate environment we're faced with has really imposed a severe penalty on these savers.

And our answer is that if you choose to move away from the high-quality bonds into instruments that will generate more income in your portfolio, you'll likely get more income over time, but you'll also very likely experience a much higher level of volatility in that income stream. Of course, the only other alternative is to reduce your spending, which perhaps is even harder to do than to stomach lower levels of income for your portfolio. So there really is no easy answer.

Vanguard really emphasizes the idea of total return. Could you talk a little bit more about that and what that means in light of what's happening in the bond market?

I think it goes back to not looking at each piece of your portfolio and the returns that they're currently generating, but the return of your total portfolio overall. It's very rare that all assets in your portfolio are delivering very strong returns at any point in time. In fact, you don't want that if you're a balanced investor, because if you do have assets that are that highly correlated in good times, chances are they'll be very highly correlated in bad times as well, and you'll realize very sharp losses in declining equity markets. But ideally, if you have a balanced, diversified approach to investing, you'll realize healthy rates of total return over time.

Vanguard research

Risk of loss: Should the prospect of rising rates push investors from high-quality bonds? PDF

[Aug 17, 2013] Fed Watch Fall Tapering in the Air

August 15, 2013 | Economist's View

anne:

https://personal.vanguard.com/us/funds/vanguard/all?sort=name&sortorder=asc#hist=upperTB%3ApyldTBI%3A%3AlowerTB%3AdailyTBI

August 15, 2013

* Remember, the Vanguard yields are after cost. The Federal Funds rate is no more than 0.25%.

anne:

January, 2013

Ten Year Cyclically Adjusted Price Earnings Ratio, 1881-2013

(Standard and Poors Composite Stock Index)

August 15 PE Ratio ( 23.79)
July PE Ratio ( 23.60)

Annual Mean ( 16.48)
Annual Median ( 15.89)

-- Robert Shiller

anne

January, 2013

Dividend Yield, 1881-2013

(Standard and Poors Composite Stock Index)

August 15 Dividend Yield ( 2.00)
July Dividend Yield ( 1.93) *

Annual Mean ( 4.44)
Annual Median ( 4.37)

* Vanguard yield after costs

-- Robert Shiller

[July 17, 2013] Fed Watch Bernanke Takes a Dovish Stance

July 17, 2013 | Economist's View

anne:

January, 2013

Ten Year Cyclically Adjusted Price Earnings Ratio, 1881-2013

(Standard and Poors Composite Stock Index)

July 17 PE Ratio ( 24.52)
June PE Ratio ( 23.19)

Annual Mean ( 16.47)
Annual Median ( 15.88)

-- Robert Shiller

anne:

January, 2013

Dividend Yield, 1881-2013

(Standard and Poors Composite Stock Index)

July 17 Dividend Yield ( 1.91)
June Dividend Yield ( 2.03) *

Annual Mean ( 4.44)
Annual Median ( 4.38)

* Vanguard yield after costs

-- Robert Shiller

anne:

https://personal.vanguard.com/us/funds/vanguard/all?sort=name&sortorder=asc#hist=upperTB%3ApyldTBI%3A%3AlowerTB%3AdailyTBI

July 17, 2013

* Remember, the Vanguard yields are after cost. The Federal Funds rate is no more than 0.25%.

[Jun 29, 2013] Economist's View Links for 06-29-2013

anne:

https://personal.vanguard.com/us/funds/vanguard/all?sort=name&sortorder=asc#hist=upperTB%3ApyldTBI%3A%3AlowerTB%3AdailyTBI

June 28, 2013

* Remember, the Vanguard yields are after cost. The Federal Funds rate is no more than 0.25%.

Fed Watch The Chart to Watch

June 20, 2013 | Economist's View

anne:

https://personal.vanguard.com/us/funds/vanguard/all?sort=name&sortorder=asc#hist=upperTB%3ApyldTBI%3A%3AlowerTB%3AdailyTBI

June 20, 2013

* Remember, the Vanguard yields are after cost. The Federal Funds rate is no more than 0.25%.

Paul Krugman Bernanke, Blower of Bubbles

Economist's View

anne:

https://personal.vanguard.com/us/funds/vanguard/all?sort=name&sortorder=asc#hist=upperTB%3ApyldTBI%3A%3AlowerTB%3AdailyTBI

May 10, 2013

The Vanguard inflation protected Treasury bond fund, with a maturity of 9.4 years and a duration of 8.3 years, is yielding - 1.14%.

* Remember, the Vanguard yields are after cost. The Federal Funds rate is no more than 0.25%.

anne:

https://personal.vanguard.com/us/funds/vanguard/all?sort=name&sortorder=asc#hist=upperTB%3ApyldTBI%3A%3AlowerTB%3AdailyTBI

May 3, 2013

* Remember, the Vanguard yields are after cost. The Federal Funds rate is no more than 0.25%.

Fed Watch Initial Jobless Claims Spiked Last Week

Economist's View

anne:

https://personal.vanguard.com/us/funds/vanguard/all?sort=name&sortorder=asc#hist=upperTB%3ApyldTBI%3A%3AlowerTB%3AdailyTBI

April 4, 2013

* Remember, the Vanguard yields are after cost. The Federal Funds rate is no more than 0.25%.

[Mar 03, 2013] Bernanke How are long-term rates likely to evolve over coming years by Bill McBride

If what Bernanke is saying is true, bonds are in the bubble territory. In no way interest rate on 10 year treasuries can be less then 2% with inflation over 2%. This is some kind of Fed manipulation. Long-term interest rates would be expected to rise gradually toward more normal levels over the next several years.
3/01/2013 | Calculated Risk

From Fed Chairman Ben Bernanke: Long-Term Interest Rates. Excerpts:

[W]hy are long-term interest rates currently so low? To help answer this question, it is useful to decompose longer-term yields into three components: one reflecting expected inflation over the term of the security; another capturing the expected path of short-term real, or inflation-adjusted, interest rates; and a residual component known as the term premium. Of course, none of these three components is observed directly, but there are standard ways of estimating them. ...

[H]ow are long-term rates likely to evolve over coming years? It is worth pausing to note that, not that long ago, central bankers would have carefully avoided this topic. However, it is now a bedrock principle of central banking that transparency about the likely path of policy, in general, and interest rates, in particular, can increase the effectiveness of policy. In the present context, I would add that transparency may mitigate risks emanating from unexpected rate movements. Thus, let me turn to prospects for long-term rates, starting with the expected path of rates and then turning to deviations from the expected path that may arise.

If, as the FOMC anticipates, the economic recovery continues at a moderate pace, with unemployment slowly declining and inflation expectations remaining near 2 percent, then long-term interest rates would be expected to rise gradually toward more normal levels over the next several years.

1 currency now -yogi:

However, it is now a bedrock principle of central banking that transparency about the likely path of policy, in general, and interest rates, in particular, can increase the effectiveness of policy.

Read more at Calculated Risk

"Bend over, fixed-income bitch, I'm going to fuck you up the ass. Aren't you glad I'm telling you ahead of time?"

adornosghost:

1 currency now -yogi wrote:

He was right, of course.

"It seems somewhat ridiculous to talk of revolution . . . . But everything else is even more ridiculous, since it implies accepting the existing order in one way or another"

Bruce in Tennessee:

2%/year inflation is not acceptable...it means 20% inflation per decade...it means the elderly will reach a point where they will be Lucky to afford catfood....think about it. Assemble all the pieces, demographics, 2% inflation when inflation is in the throes of global debt repudiation, younger generations deeply in debt...and on top of all this our central bank thinks 2%/year is acceptable...

...I suspect this allows virulent inflation to get started from a "standing start"...but I guess we'll see. Maybe Chinese and Vietnamese wage inflation will be such that we'll see textile mills return to North Carolina....OR maybe we'll get an even poorer class of people that are not able to accept risk with their already insuffient funds...

..That's the ticket.

sm_landlord:

Bruce in Tennessee wrote:

2%/year inflation is not acceptable...it means 20% inflation per decade...

Actually worse than that, because inflation grows through the Magic of Compounding™

REBear:

"toward more normal levels over the next several years." Read more at Calculated Risk

I think he is saying rates not going anywhere "over the next several years"

[Mar 03, 2013] The 'Great Rotation'? More Like The Great Lie

Seeking Alpha

Stocks funds saw a large increase in assets of 5.2% from December to January but Bonds also saw in increase in assets. (Click on table to enlarge)

Net asset table-ICI

[Mar 01, 2013] Economist's View Fed Watch If Not For That Pesky Sequester

anne:

Investment markets are just fine, even investment markets in Europe, but I take the general bond market as the best indicator of the strength or weakness of the economy and bond investors just do not think that significant enough growth to make a needed difference in employment is anywhere near:

https://personal.vanguard.com/us/funds/vanguard/all?sort=name&sortorder=asc#hist=upperTB%3ApyldTBI%3A%3AlowerTB%3AdailyTBI

March 1, 2013

The 3 month Treasury interest rate is at 0.07%, the 2 year Treasury rate is 0.23%, the 5 year rate is 0.75%, while the 10 year is 1.85%.

The Vanguard A rated short-term investment grade bond fund, with a maturity of 3.1 years and a duration of 2.4 years, has a yield of 1.11%. The Vanguard A rated intermediate-term investment grade bond fund, with a maturity of 6.4 years and a duration of 5.4 years, is yielding 2.17%. The Vanguard A rated long-term investment grade bond fund, with a maturity of 24.2 years and a duration of 13.6 years, is yielding 4.14%. *

The Vanguard Ba rated high yield corporate bond fund, with a maturity of 4.9 years and a duration of 4.4 years, is yielding 4.48%.

The Vanguard convertible bond fund, with a maturity of 6.8 years and a duration of 7.4 years, is yielding 2.81%.

The Vanguard A rated high yield tax exempt bond fund, with a maturity of 6.6 years and a duration of 6.1 years, is yielding 2.40%.

The Vanguard A rated intermediate-term tax exempt bond fund, with a maturity of 5.5 years and a duration of 5.1 years, is yielding 1.51%.

The Vanguard GNMA bond fund, with a maturity of 6.3 years and a duration of 4.3 years, is yielding 2.34%.

The Vanguard inflation protected Treasury bond fund, with a maturity of 9.1 years and a duration of 8.5 years, is yielding - 1.17%.

* Remember, the Vanguard yields are after cost. The Federal Funds rate is no more than 0.25%.

Not your father's IBM - I, Cringely

[Oct 06, 2010] Vanguard cuts fees by expanding share class Mark Jewell

Vanguard cuts fund fees by lowering entry bar for low-cost Admiral share class
October 6, 2010 | Yahoo! Finance

Vanguard is expanding access to its lowest-cost mutual fund share class for individual investors, a move that will bring fee reductions to nearly 2 million clients of the nation's largest fund company.

Vanguard said Wednesday it is reducing the minimum investment amount to qualify for its Admiral share class, which charges lower investment expenses than its Investor mutual fund shares.

The biggest cuts affect Vanguard's index funds, which the company pioneered in the late 1970s as low-cost alternatives to actively managed funds relying on human investment-picking expertise. Investors who previously needed to invest at least $100,000 to qualify for Admiral shares can now get in with just $10,000 for Vanguard index funds, which passively track stock or bond market indexes.

For example, Admiral shares of Vanguard's Total Stock Market Index Fund will charge $7 in annual expenses for every $1,000 invested, provided an investor has at least $10,000 in the fund. That's down from $18 in annual expenses for Investor shares in the $138 billion fund, which requires a minimum of $3,000.

For Vanguard's less-popular actively managed funds, the new investment minimum for Admiral shares is $50,000 instead of $100,000.

A total of 52 of Vanguard's more than 170 U.S. funds offer Admiral shares with the new lower eligibility requirements, including 17 index funds and 35 actively managed funds.

Vanguard will begin converting qualifying accounts to Admiral shares in coming months, affecting nearly 2 million clients.

The privately held, shareholder-owned company, based in Valley Forge, Pa., has offered its Admiral share class for 10 years, along with its Investor class and institutional shares geared toward clients like 401(k)s or other workplace savings plans.

Vanguard's Admiral share class now holds about $340 billion, or about one-quarter of the nearly $1.5 trillion in U.S. mutual fund assets that Vanguard manages. With the expanded access to Admiral shares, that class will grow to $430 billion, with the $90 billion shifted from Investor class shares.

Wednesday's announcement is the latest in a string of cost-cutting moves this year by Vanguard, which has used its size to become more efficient and drive down expenses, challenging chief rivals Fidelity Investments and Capital Group's American Funds. In May, Vanguard began offering its brokerage clients commission-free trades in Vanguard exchange-traded funds, a fast-growing business where Vanguard is playing catch-up to rivals like BlackRock Inc.'s iShares ETFs and State Street's "SPDR" ETFs.

Last month, Vanguard began offering an ETF share class of its Vanguard 500 Index, a $94 billion behemoth tracking the Standard & Poor's 500. The ETF version charges $6 per $1,000 in annual expenses, compared with $18 for the fund's Investor class, and $7 for the Admiral class.

Vanguard last month also launched 19 new funds that offer traditional mutual fund shares along with ETF shares that hold the same basket of stocks or bonds as the conventional fund shares.

ETF shares are priced throughout the trading day and can be traded like stocks. That makes it possible to lock in a preferred price without waiting for a closing price, unlike with mutual funds, whose shares are priced once a day.

Last week, Vanguard announced expense cuts at its 529 college savings plan offered through the state of Nevada.

[Oct 06, 2010] Nest Eggs Seem to Lack Attention and Diversity

Vanguard Finds Investors Fail to Adequately Nurture Their Retirement Savings
ARDEN DALE
DOW JONES NEWSWIRES, November 28, 2005; Page C9
http://online.wsj.com/article/SB113313361680107674.html

December 04, 2005 | 10:00 AM | Permalink | Comments (2) |

Comments

Jason

Two thoughts - first, I wonder whether Vanguard took into account that IRAs tend to feature smaller annual contributions, which makes it hard to amass enough capital to diversify across multiple funds.

But the asset allocation is certainly troubling. It looks like the mirror image of what happened in the mid-1990s, when individuals were being told to diversify into equities (an argument that leaned heavily on Jeremy Siegel) and out of stable value/money market funds. Looks like that argument worked perhaps too well.

Perhaps they diversify in their 401k, which has higher contribution limits and matching.

[Sep 10, 2010] Vanguard Adds 9 S&P Equity ETFs - Yahoo! Finance

On the bond side, Vanguard will offer three new municipal bond index funds with traditional and exchange-traded shares, tracking benchmarks in the S&P National AMT-Free Municipal Bond Index series. The expense ratio for each of Vanguard's new municipal ETFs is estimated to be 0.12%.

Vanguard has also filed for a new real estate fund, which will be benchmarked to the S&P Global Ex-U.S. Property Index. Vanguard Global ex-U.S. Real Estate Index Fund will offer Investor Shares, Institutional Shares, Signal Shares, and ETF Shares.

Vanguard Drops Grantham's Firm as Co-Manager of Funds By Sree Vidya Bhaktavatsalam

That was a wrong move...
February 26, 2008 Bloomberg.com

Vanguard Group Inc., the second- biggest U.S. mutual-fund company, dropped the investment firm run by Jeremy Grantham as co-manager of three domestic stock funds that lagged behind peers in the past year.

The firm, Grantham, Mayo, Van Otterloo & Co. LLC, was removed from the $10.5 billion Explorer, the $975 million Vanguard U.S. Value and the $695 million VVIF-Small Company Growth Portfolio, Valley Forge, Pennsylvania-based Vanguard said today in a statement. Vanguard replaced Boston-based GMO with its own quantitative equity group, which uses mathematical models to pick stocks.

The Explorer fund, which invests in U.S. small-company stocks, slumped 11 percent in the past year, trailing half of its peers, according to data compiled by Bloomberg. Grantham, whose firm oversees $157 billion, said in a Jan. 23 interview that investors should avoid equities and hold cash during what he called worst U.S. financial crisis since World War II.

``There are plenty of bad things left in this cycle,'' Grantham, 69, said in the interview.

Dubbed a ``perma-bear'' for his dour view on U.S. equities for more than a decade, Grantham correctly predicted a crash in technology stocks two months before the bubble burst in March 2000. GMO had managed the Vanguard fund since 2000.

Vanguard, which has used multiple managers for its $47 billion Windsor II and other funds since 1997, reviews external advisers and fund performance every quarter.

The quantitative group "was a good fit and it was complementary to the existing managers,'' Rebecca Cohen, a spokeswoman for Vanguard, said in an interview.

Tucker Hewes, a spokesman for GMO, declined to comment.

Prudential Plc

The U.S. Value Fund slumped 8.1 percent in the past year, trailing 61 percent of rival funds that invest in stocks deemed cheap based on financial yardsticks such as earnings, Bloomberg data show. The VVIF Small Company Growth, offered to institutions and through advisers, slumped 9.9 percent in 2007, four times the pace of the benchmark Russell 2500 Index, according to data on Vanguard's Web site.

Vanguard picked Prudential Plc's M&G Investment Management to manage a portion of its largest actively managed non-U.S. fund, the $18.3 billion Vanguard International Growth Fund and the $1.9 billion VVIF - International Portfolio. London-based M&G joins Schroder Investment Management and Baillie Gifford Overseas Ltd. in managing the non-U.S. funds.

M&G has managed the $4.6 billion Vanguard Precious Metals and Mining Fund since its inception in 1984. The fund climbed 41 percent in the past year, beating 98 percent of competing funds that invest in specific industry groups, Bloomberg data show.

Vanguard's quantitative group has $25 billion active equity fund assets. Vanguard manages $1.25 trillion in U.S. mutual-fund assets. It ranks second to Fidelity Investments in Boston, which manages $1.6 trillion.

To contact the reporter on this story: Sree Vidya Bhaktavatsalam in Boston at sbhaktavatsa@bloomberg.net;

Vanguard Windsor II - James P. Barrow has lost his touch

Yahoo! Message Boards

21-Dec-07 10:35 pm

I had yields over 4% in my Vanguard Prime MM and Fidelity Cash Reserves funds, with no risk. Unless we get a year end rally, these will beat VWNFX. Why are you defending this fund? Can't take criticism?

I think it is ridiculous they set a high minimum initial investment ($10,000) on this fund. There is nothing premium about Windsor II anymore.

Vanguard is a has-been investment firm. Lack of fresh ideas, marginal returns and dead interest by Yahoo subscribers should be clues enough for any new investor.

[Sep 10, 2010] Vanguard Adds 9 S&P Equity ETFs - Yahoo! Finance

On the bond side, Vanguard will offer three new municipal bond index funds with traditional and exchange-traded shares, tracking benchmarks in the S&P National AMT-Free Municipal Bond Index series. The expense ratio for each of Vanguard's new municipal ETFs is estimated to be 0.12%.

Vanguard has also filed for a new real estate fund, which will be benchmarked to the S&P Global Ex-U.S. Property Index. Vanguard Global ex-U.S. Real Estate Index Fund will offer Investor Shares, Institutional Shares, Signal Shares, and ETF Shares.

Only by signing up for electronic delivery of shareholder materials (statements, confirmations, and so on) you can avoid fees for underinvestment in a fund. Of course, you could consolidate funds to get over the minimums, or maintain $100,000 or more in total Vanguard investments. But if that's not your cup of tea, simply signing up for electronic delivery is your best bet. In our case, we actually signed up for this long ago to stem the flow of paperwork into our mailbox.

The Big Picture Vanguard Nest Eggs Lack Attention and Diversity

Vanguard: Nest Eggs Lack Attention and Diversity

Sunday, December 04, 2005 | 10:00 AM

in Investing | Psychology/Sentiment

"Investors too often let their retirement nest eggs lie without proper attention, and don't do enough to diversify their savings, according to a study to be published by mutual-fund giant Vanguard Group."

Thats an all too true statement from mutual fund giant Vanguard. They looked at five million people with employer-sponsored defined-contribution plans or individual retirement accounts it administers. Vanguard found that during the first half 2005, only 10% of investors in the defined-contribution plans and 8% of IRA owners made any trades within the accounts.

Thats not to suggest that people should be overtrading -- but one would have thought there would have been more assel reallocation or rebalancing going on.

Vanguard also found that IRA holders are about twice as likely to invest in a single asset class or single fund as are those with defined-contribution plans. The typical IRA holder chooses just one fund, compared with the three funds typically held in a defined-contribution plan, such as a 401(k) retirement savings account.

The average Vanguard-administered defined-contribution plan offered 18 funds at the end of 2004, compared with more than 70 Vanguard funds offered to IRA investors, according to the study. The plethora of choices offered to IRA investors may result in "choice overload," Vanguard said.

Why reallocate? Consider:

Stocks accounted for about 70% of combined assets in IRAs and defined-contribution plans held by the average investor in his late 40s, Vanguard said. But half of the IRA holders put their entire accounts into stocks, compared with 20% of the defined-contribution holders. At the other end of the spectrum, 14% of the defined-contribution investors put all of their money into fixed-income investments, compared with 8% of Vanguard IRA investors.

"It is interesting to us that so many people do appear to take extreme positions, so 100% equity or no equity," said Ms. Young.

Vanguard also advises investors in the plans against trying to time their moves in and out of investments and trading frequently. "Investors should be duly skeptical of their own rationales for market-timing, and instead they should consider making trading decisions based on changes in their overall circumstances rather than their short-term outlook for the financial markets," the study said.

[May 31, 2008] Wal-Mart Sued for Not Using Vanguard by nickel

Wall Mart is too mean and should be punished for how it handle 401K accounts. They selected the most greedy and incompetent of money managers possible ;-) ...
fivecentnickel.com

I just ran across an interesting article that talks about a lawsuit against Wal-Mart over their 401(k) investment selections.

The suit claims that Wal-Mart harmed their employees by offering high-cost retail funds instead of the cheaper institutional funds for which they surely qualify, and by only offering actively-managed (and thus costly) fund options rather than choosing a company such as Vanguard that offers low-cost index funds. Overall, the suit claims that if the Wal-Mart 401(k) had been invested in Vanguard funds, it would have been worth an additional $140 million over the six year period under consideration.

This is an interesting case. While I'm not a big fan of lawsuits of this nature, the lack of affordable investment options in many 401(k) plans is a real issue that needs to be dealt with.

9 Comments

[Apr 30, 2008] Vanguard Removes Annual Account Fee by nickel

In case you didn't know, Vanguard has traditionally levied a $10 annual account fee on IRAs (traditional, Roth, or SEP) and ESAs with a balance of less than $5,000, index fund accounts with a balance of less than $10,000, and all non-retirement accounts with a balance of less than $2,500. Going forward, they've decided to levy a $20 fee for each Vanguard fund in which you have a balance of less than $10,000.

The good news here is that you avoid these fees entire

[Dec 5, 2005] Vanguard Group, The Vault Jobs Surveys by Jon H

Job Title: Financial Counselor
Location: Malvern, PA
Submitted on: 07-May-03

Job Title

Workplace Survey

Financial Counselor

The Malvern (Valley Forge) offices of the company are still professional dress. The IT division is a little looser. The company has a very frugal culture, tends to develop systems "in-house" versus off the shelf because "we are vanguard and nobody knows how we run our ship." This tends to produce technology that is often too late and too little. Nothing original gets done. We are very proud of how little we spend to run the operation.

The Admiral Share class was in reality a revenue give-back that has basically hamstrung the company from investing in itself recently. The pay sucks. If you come from the outside (like I did) you have to get everything you want upfront (sign-on bonus, base, etc.) because you won't get it once you are in the door. Previous work experience means nothing once you are in. The IT division loves getting the talent from the likes of Lockheed Martin, GE, Unisys, Conrail and every other large companies IT divisions that have shrunk in the easter PA area over the past 5 years. Once inside it doesn't matter because you will be outnumbered. Forget about raises.

The company had a four scale rating system (prior to last year) where 1% of the company gets an "Exceeds" rating, 60% get "Achieves" close to 30% got "Needs..." and the rest basically don't make it till review time. Anyhow they revampted the reviews so that 1% of the 1% get "consitency exceeds, 5-10 percent get "exceeds" 80% get "achieves" and the bottom get "needs improvement." With the "redeployments" going on this past year (consitently denied in the press, and vanguard never lays off), getting a needs improve rating means you need to look elsewhere. Oh, in case you were wondering I received an "exceeds" rating this past year. That equated to a 2% raise. Sure glad

I busted my hump to by doing more and better than the rest so that my raise could be double 60% of my coworkers who got a 1% raise. To put this in perspective, inflation was 2.2% this past year. Vanguard likes to use the phrase total compensation, which includes partnership which is to count towards your comp but shouldn't be included for its not guaranteed. Anyhow the company line is that it aligns shareholder interests with the crews. In reality it is an involuntary deferred comp that you get after the fact and is capped. Everybody knows it's capped, until it got out in the press that Brennan and other officers partnership payouts are not capped. No wonder Brennan wants to get to 100 per share by 2005. It's not really the motivation you would think since the majority of the crew is capped and all of the crew will be by then. So if you don't mind being underpaid for the next few years.....

December 1, 2002 FundAlarm - Highlights & Commentary Archive By Roy Weitz

Mutual fund directors are as close as we get to "insiders" in the mutual fund world, and it can be fun (and occasionally instructive) to see how insiders invest their own money.....According to recent proxy materials from Vanguard, a group of seven directors (technically, trustees) runs all 109 Vanguard funds, and each director personally owns, in total, at least $100,000 worth of Vanguard funds.....But as you might expect, the type of funds, and the amount invested, varies widely from director to director.....For example:

You can view all of the Vanguard directors, and the funds they own, on the accompanying page

TMF Re bond funds - Index Funds

>> a few hundred posts back someone mentioned bond funds, and was told to avoid them (bond funds are evil)--but further along , someone asks about Vanguard bond funds and they seem acceptable to everyone. I am pretty confused actually. are they ok or not ok? <<

Two things:

1. Bond funds usually get a bad rap because they never "mature." For example, if you put $5,000 into a bond (or group of bonds) with a 5-year maturity, after five years, you'll get your $5,000 back plus the interest paid on the bonds (assuming no defaults). But a bond *fund* with a 5-year maturity always seeks to keep that maturity, so if interest rates rise, after five years you have less than $5,000. (Of course, if they fall, you have *more* than $5,000.)

2. Many folks here believe that if it's Vanguard, it can do no wrong, and that if it's not Vanguard, it sucks. Vanguard is certainly one of the better fund families out there if not the best, but I don't think one can conclude that they are the solution for everyone and everything. You'll probably find that the Vanguard product family is a good choice for you, but do your own research to make sure. Vanguard is heavily hyped here -- with some good reason -- but there's much more out there as well.

Best of luck!

The best Vanguard funds for a 401k - MSN Money

[Related content: 401k, funds, Vanguard, bond funds, mutual funds]

The best Vanguard midcap funds

My favorite Vanguard midcap funds are the Vanguard Capital Opportunity fund and the Vanguard Selected Value (VASVX) fund, though I don't think many 401k plans hold them.

You could ask for them or simply go with an index duo: Vanguard Mid-Cap Growth Index (VMGIX) and Vanguard Mid-Cap Value Index (VMVIX).

Of course, holding an equal weighting in these two index funds would be the same as investing in the broader Vanguard Mid-Cap Index (VIMSX), but having the two funds allows you to adjust your midcap assets to lean more heavily toward the growth or value side, depending on what's happening in the market.

Right now, for example, you'd want to overweight the growth side of the ledger. The financial stocks that are a heavy component in the value index fund have had a healthy run of late, as have the tech stocks in the growth fund. But there's a better chance that tech stocks will continue to gain momentum in the economic recovery, while the banks will tread water until economic skies are clearer.

Best Vanguard international funds

I recommend you have 10% to 15% of your 401k in international funds, and Vanguard has some stellar choices. Vanguard International Growth (VWIGX) is likely to be one of your 401k offerings, and it's a fine fund to own.

With three managers, International Growth still holds just 170 stocks or so, and close to 20% of its assets are in the top 10 stocks. That's the kind of concentration I like. The managers also aren't afraid to invest in emerging markets, something you don't always find in more-plain-vanilla offerings.

As I said before, you'll want to spice your foreign holdings with some of the Vanguard Emerging Markets Index fund, and it's worth your while to demand your 401k administrator give you access to this fund.

Globally, emerging economies are showing increased economic firepower, hungry consumers and the ability to take advantage of newly aggressive importers, exporters, manufacturers and entrepreneurs. Emerging Markets Index will give you nice exposure to one of the most powerful investment markets out there -- China -- with about 20% of its assets in this economic powerhouse.

In addition, Emerging Markets has investments in Brazil (15%), Korea (13%) and Taiwan (12%).

I'd also like to see you have some exposure to foreign small caps. Vanguard FTSE All-World ex-US Small-Cap Index (VFSVX) is a new Vanguard fund that invests in small-cap non-U.S. stocks. This fund tracks an FTSE benchmark of more than 3,000 stocks, and it will give you excellent exposure to this sector of the market.

Best Vanguard bond funds

If you own Wellington in your 401k, you already have exposure to high-quality corporate and government bonds, so you don't need to diversify into another bond fund in your 401k. But if not, put about 10% of your 401k money in Vanguard Short-Term Investment-Grade Bond Fund (VFSTX).

This fund invests at least 80% of its assets in "investment-grade" or better short- and intermediate-term bonds, and that has been a good place to be lately. As banks have pulled in their lending, corporate bond issuance worldwide has gone through the roof. This fund has performed well this year and should continue to do so down the road.

Vanguard's Intermediate-Term Investment-Grade Bond Fund (VFICX) is also a good choice, but it will be a bit more volatile when interest rates begin to rise.

Putting it all together

If you are able to invest in any of the Vanguard Primecap-managed funds, put most of your equity money there. If not, start with Wellington. Round out your equity holdings with Vanguard Mid-Cap Growth and Vanguard Mid-Cap Value, overweighting in one or the other depending on what's happening in the market.

Video: Active funds can beat indexes

You'll want 10% to 15% of your 401k money in international funds, including Vanguard International Growth, Vanguard Emerging Markets Index and Vanguard World ex-US Small-Cap Index.

And if you don't have a balanced fund like Wellington, which already owns bonds, put 10% of your 401k money in Vanguard Short-Term Investment-Grade Bond Fund or Vanguard Intermediate-Term Investment-Grade Bond Fund.

The chart below gives you the starting point I'd recommend, naming key funds and their focus areas. If you don't have all the choices (or, I suppose, Vanguard at all), the focus areas might still give you some guidance.

Remember, it's your retirement. So make sure your 401k plan is designed to help you, not your benefits manager.

Portfolios for long-term growth investors
Fund Focus Allocation

Using Wellington as your core

Wellington

Balanced (60% stock/40% bond)

40%

Mid-Cap Growth Index

Stock -- midcap growth

25%

Mid-Cap Value Index

Stock -- midcap value

15%

International Growth

Foreign stock -- large

10%

Emerging Markets Index

Foreign stock -- emerging

5%

World ex-US Small-Cap Index

Foreign stock -- small

5%
Total

100%

Using Primecap-run funds as your core

Primecap/Primecap Core/Capital Opportunity

Stock -- Growth at a reasonable price

44%

Selected Value

Stock -- mid-cap value

20%

International Growth

Foreign stock -- large

10%

Emerging Markets Index

Foreign stock -- emerging

5%

World ex-US Small-Cap Index

Foreign stock -- small

5%

Short-Term Investment-Grade Bond

Short corporate bonds

8%

Intermediate-Term Investment-Grade Bond

Intermediate corporate bonds

8%
Total

100%

Dan Wiener is the editor of The Independent Adviser for Vanguard Investors. A five-time winner of the Newsletter Publishers Foundation's Editorial Excellence Award, Wiener is the founder of the Fund Family Shareholder Association and chief executive officer and chief investment strategist of Adviser Investment Management, a Newton, Mass., investment advisory firm.

Vanguard's Best Bear Market Mutual Funds

Thursday August 30, 7:00 am ET
By Dan Culloton

The increased market volatility in recent months as well as Vanguard's announcement that it will launch a market-neutral fund for institutional investors before the end of the year got me thinking (a dangerous development, to be sure). Are any of Vanguard's funds any good at reducing volatility without sacrificing the potential for capital appreciation like a market-neutral fund is supposed to do? And if market-neutral funds are such a great idea, does the typical Vanguard investor need one in his or her portfolio? To answer these questions I looked at the bear market ranks of Vanguard funds, as well as measures of their volatility, such as standard deviation. I also checked how the funds have held up relative to their peers during the tumultuous third quarter. I found that quite a few Vanguard funds looked good according to the bear market ranking (which gauges how funds have done in down markets over the past five years), so the answer to the first question is a resounding yes. That also answers the second question. With so many options with long histories of minimizing market risk while delivering some capital appreciation, most Vanguard investors could live long and happy lives without a market-neutral fund. I've highlighted below what I think are the best Vanguard funds for a bear market. Granted, they don't use the sophisticated strategies of a market-neutral fund, but they've delivered pretty good downside protection and absolute returns at less than half the projected cost of the proposed Vanguard Market Neutral Fund.

A caveat: I'm not predicting that the end is nigh (I'll leave that to Jeremy Grantham) or urging you to dump all your holdings and buy one of these funds. I still believe that the best safeguard against a bear market is to be a long-term investor with a sound long-term plan. But if the recent undulations have been giving you panic attacks in the shower or causing you to check out the return prospects of shoeboxes and mattresses, it may be time to re-evaluate your risk profile and perhaps consider funds like these.

Vanguard LifeStrategy Income (NASDAQ:VASIX - News)
This is a fund of funds that keeps most of its money in fixed-income portfolios: Vanguard Total Bond Market (NASDAQ:VBMFX - News) and Vanguard Short-Term Investment-Grade (NASDAQ:VFSTX - News). But its equity stake can vary from 5% to 30% depending on the asset-allocation calls of Tom Loeb and his team at Vanguard Asset Allocation (NASDAQ:VAAPX - News), which gets 25% of assets here (Vanguard Total Stock Market Index (NASDAQ:VTSMX - News) accounts for the rest of stock holdings). Loeb uses quantitative models to figure out how much of his portfolio to devote to S&P 500 stocks and the Lehman Brothers Long-Term Treasury Index, and his calls have been consistent and accurate over the years. (Currently Loeb's fund has about three fourths of its assets in stocks, so this fund's equity allocation hangs around 20%.) That give this conservative fund a little upside potential, but it's really designed to preserve capital and generate income. The fund's bear market rank is better than 97% of its conservative-allocation category peers and in the third quarter through Aug. 28 it eked out a small gain that put it ahead of 96% of its peer group. Investors who are further away from their goals or who are more risk tolerant can check out Vanguard LifeStrategy Conservative Growth (NASDAQ:VSCGX - News) and Vanguard LifeStrategy Moderate Growth (NASDAQ:VSMGX - News), which devote more money to equity funds and have done well in bear markets relative to their peers.

Vanguard Wellesley Income (NASDAQ:VWINX - News)
A colleague of mine recently told me that this portfolio, which keeps most of its money in bonds, was the first fund she ever bought. My first reaction was to say that it seemed awfully conservative for someone whose retirement was still decades off. She retorted that she was looking for a one-stop fund that wouldn't burn an inexperienced investor. Since then she has built a more age-appropriate asset-allocation plan around this fund, but she has never regretted her first purchase because the fund has been so reliable. It has lost money in just three of the last 20 years, has done better than 97% of its peers in bear markets, and has succeeded in delivering a steady stream of income with a portfolio of undervalued, high-yielding stocks and high-quality (mostly corporate) bonds. That the fund has held up well (better than nearly 90% of its conservative-allocation peers for the third quarter through Aug. 28) in the middle of a credit crunch with such a large corporate bond stake is testimony to the security-selection skills of long-time fixed-income manager Earl McEvoy and his team from Wellington Management. Wellington's John Ryan on the equity side is no slouch either. He's leaving the fund next year but has a seasoned understudy lined up in Michael Reckmeyer III. My colleague argues that there are worse newbie-investor mistakes than buying this fund, and I'd have to agree.

Vanguard Short-Term Tax-Exempt (NASDAQ:VWSTX - News)
This fund is cautious and consistent. Longtime manager Pam Wisehaupt-Tynan keeps the portfolio's duration, a measure of interest-rate sensitivity, low and its credit quality high. Low expenses allow the fund's conservative approach to work in its favor over time. Put too much of your portfolio here and you could run the risk of not keeping up with inflation or not seeing enough appreciation to meet your goals, but it can take the edge off a taxable portfolio. It's done better than 96% of its peers in bear markets and outpaced almost 80% of them in the current quarter through Aug. 28.

Vanguard Balanced Index (NASDAQ:VBINX - News)
Once again, simplicity and low costs work in a Vanguard fund's favor. A mix of 60% MSCI U.S. Broad Market Index (essentially Vanguard Total Stock Market Index ) and 40% Lehman Aggregate Bond Index has produced reliable absolute returns. It's done better than 86% of its peers in bear markets and has bested about four fifths of them so far in the third quarter. The fund's correlation with the overall market is higher, but it's still a solid core holding.

Vanguard Wellington (NASDAQ:VWELX - News)
This is another old stalwart managed by the redoubtable Wellington Management. In June, my colleague Chris Davis highlighted this one of Morningstar's favorite "sleep-at-night funds", or offerings that don't keep you awake at night wondering what they are doing. Since then the fund has acquitted itself relatively well. It posted a 1.9% loss for the third quarter through Aug. 28, but that was still better than 82% of its moderate-allocation peers. Its long-term bear market rank also is still better than 86% of its rivals. And like its sibling Wellesley Income it has delivered consistent absolute results, losing money in just three of the last 20 calendar years.

Read more about Vanguard funds in our Vanguard Fund Family Report. To view a risk-free trial issue, click here.

Dan Culloton does not own shares in any of the securities mentioned above.

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