Tag Archives: vfisx

A Vanguard Buy And Hold Mutual Fund Strategy With 9% Growth And -6% Maximum Drawdown

All of my previous investing strategies have focused on tactical asset allocation to reduce risk in a portfolio while maintaining moderate growth. My objectives for a low risk, moderate growth tactical strategy have been: 1) 10% Compounded Annual Growth Rate [CAGR], 2) -5% Maximum Drawdown [MaxDD], and 3) all positive years of return. In my research, I have found a combination of five Vanguard mutual funds that can be bought and held (rebalanced annually) that nearly meet my objectives. A passive strategy holding these funds eliminates the need (and cost and risk) of updating every month in a tactical asset allocation strategy. This article will describe the components of this buy & hold strategy and present backtest results from 1988 to the present. As an overview, portfolio growth of this buy & hold strategy is presented below. (click to enlarge) Click to enlarge The five Vanguard funds are: 1. Vanguard GNMA Fund (MUTF: VFIIX ), 2. Vanguard High Yield Tax-Exempt Fund (MUTF: VWAHX ), 3. Vanguard Health Care Fund (MUTF: VGHCX ), 4. Vanguard Long-Term Treasury Fund (MUTF: VUSTX ), and 5. Vanguard Short-Term Treasury Fund (MUTF: VFISX ). Five different classes of funds are represented in the basket of funds: 1) a GNMA bond fund, 2) a high yield municipal bond fund, 3) a healthcare equity fund, 4) a long-term treasury bond fund, and 5) a short-term treasury bond fund. The correlations between these funds can be seen below (taken from Portfolio Visualizer [PV]). It can be seen that the funds do not correlate well with each other, as desired. (click to enlarge) Click to enlarge Backtesting was performed from 1988 – present using PV. In order to backtest to 1988, Fidelity Limited Term Government Fund (MUTF: FFXSX ) was substituted for VFISX. The backtest results are shown below. For comparison, results of an absolute momentum strategy and the Vanguard Total Bond Index Fund (MUTF: VBMFX ) are also presented. The absolute momentum strategy buys and holds all five funds unless any fund has a one-month total return that is less than a money market return. If that occurs, then the money from that fund is diverted into a money market fund until the one-month return is greater than the money market return. (click to enlarge) Click to enlarge (click to enlarge) Click to enlarge (click to enlarge) Click to enlarge (click to enlarge) Click to enlarge It can be seen that the buy & hold strategy has the highest total return with relatively low drawdown. The CAGR is 9.0% and the MaxDD is -6.0%. The worst year is -0.9% in 1994, and the only other year with negative return is 1999 (-0.4%). All other years have positive returns. The risk adjusted return numbers are: Sharpe Ratio = 1.2, Sortino Ratio = 2.2, and MAR (CAGR/MaxDD) = 1.5. The monthly win rate is ~73%. The buy & hold strategy has the highest annual return (over the other two investment vehicles) in 16 of the 28 years presented. Usually, an absolute momentum strategy such as the one presented here will help reduce drawdown at the expense of annual growth. And, indeed, we see that kind of result here. The absolute momentum tactical strategy has a CAGR of 7.4% and a MaxDD of -3.0%. So there is a tradeoff, higher CAGR for the buy & hold passive strategy (9.0% vs. 7.4%), or lower MaxDD for the absolute momentum active strategy (-3.0% vs. -6.0%). In this case, I would prefer the higher growth buy & hold strategy because of its simplicity and -6.0% MaxDD is still quite low. Disclosure: I am/we are long VFIIX, VWAHX, VGHCX, VUSTX, VFISX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

4 Top-Rated Short-Term Government Bond Mutual Funds For Steady Yield

A short-term government bond fund is a mutual fund that’s limited, by its investment objectives and fund bylaws, to investing primarily in short-term obligations of the federal government or its agencies. Depending on the fund’s definition, short term can be up to five years. Meanwhile, mutual funds investing in government debt securities are among the most secure investment options which provide regular income while protecting the capital invested. Funds which are part of this category bring a great deal of stability to portfolios with a large proportion of equity, while providing dividends more frequently than individual bonds. Hence, they are considered to be the safest in the bond fund category and are ideal options for the risk-averse investor. Below we will share with you 4 top-rated short-term government bond mutual funds. Each has earned a Zacks Mutual Fund #1 Rank (Strong Buy) as we expect these mutual funds to outperform their peers in the future. Fidelity Spartan Short Term Trust Bond Index Fund (MUTF: FSBIX ) invests a major portion of its assets in securities included in the Barclays U.S. 1-5 Year Treasury Bond Index. FSBIX uses statistical tools such as duration, maturity, interest rate sensitivity, security structure, and credit quality to imitate the returns of the index. The Fidelity Spartan Short Term Trust Bond Index Fund returned 1.1% in the last one year. FSBIX has an expense ratio of 0.20% as compared to a category average of 0.80%. Vanguard Short Term Treasury Fund (MUTF: VFISX ) seeks current income with minimum price volatility. VFISX invests a large share of its assets in U.S. Treasury instruments such as bills, bonds, and notes. VFISX seeks to maintain a dollar-weighted average maturity between 1 and 4 years. The Vanguard Short Term Treasury Fund returned 0.9% in the last one year. Gemma Wright-Casparius is the fund manager and has managed VFISX since January 2015. JPMorgan Short Duration Bond Fund A (MUTF: OGLVX ) invests a large portion of its assets in investment grade debt securities having short-to-intermediate maturities. These include U.S. government obligations, and mortgage-backed and asset-backed securities. OGLVX selects individual securities on the basis of a risk/reward analysis, including an evaluation of interest rate risk, credit risk, and the legal and technical structure of the transaction. OGLVX offers dividends monthly and capital gains annually. The JPMorgan Short Duration Bond Fund A returned 0.4% in the last one year. As of August 2015, OGLVX held 1636 issues, with 2.85% of its total assets invested in US Treasury Note 0.625% Oppenheimer Limited-Term Government Fund A (MUTF: OPGVX ) seeks current income. OPGVX invests the majority of its assets in debt securities issued by the U.S. government. OPGVX may also invest a maximum 20% of its assets in mortgage-backed securities, which are not issued by the U.S. government. OPGVX aims to maintain an average effective portfolio duration of a maximum of three years. The Oppenheimer Limited-Term Government Fund A returned 0.8% in the last one year. Peter A. Strzalkowski is the fund manager and has managed OPGVX since April 2009. Original Post