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The Coronavirus Crash Reveals a Big Problem In Bond Fund Pricing
So if there wasn't a bond bailout, more vanilla mutual fund bond funds would have started suffering severe losses due to this dislocation as well? It also seems the dislocation & mismatching occurred even between ETFs.
Good news. Overall there isn't much difference in performance between the index type ETF & mutual funds despite all the gyrations.
From Morningstar (I couldn't figure how to copy the page directly as there is no copy image location for the page on my browser): Total Ret 1-Day 1-Week 1-Month 3-Month YTD 1-Year 3-Year 5-Year 10-Year 15-Year VBMFX 0.02 0.49 -0.91 2.88 3.56 9.77 4.73 3.25 3.77 4.27 BND -0.05 0.11 -1.03 2.66 3.16 9.55 4.72 3.28 3.84 SWAGX 0.10 0.70 -0.82 2.89 3.41 9.68 4.73 SCHZ 0.33 -0.16 -1.49 2.16 2.75 8.91 4.49 3.12
I accessed the article by typing the article name into an incognito window. Then, I clicked on the link to the article. Then, I closed an ad asking me to subscribe. Then the article was available. Apparently Barrons isn't concerned about people occasionally accessing an article this way.
Here are a couple more excerpts:
The problem with the NAV being wrong for the mutual funds is that on days when the ETF’s market price trades at a discount to NAV, that means investors who bought the mutual fund essentially overpaid for its elevated NAV, while those selling received more for their sale than they should have. There is ultimately a delay, as the stale prices for the mutual fund’s bond portfolio have to adjust. Investors saw the consequences of that delay on March 13, when the Vanguard mutual fund fell 0.5% on a day when the ETF rallied 4.2%.
In an email to Barron’s, AlphaCentric stated, “We believe the NAV of the AlphaCentric Income Opportunities fund was accurately priced each day. The price reflects the fair value of its underlying portfolio of residential mortgaged backed securities, not equities.…The AlphaCentric fund’s daily pricing was done by ICE, which is one of the largest and most respected independent pricing services.” Yet ETF experts say that such fair-valuation services employ limited data. “Only about 20% of the bond universe trades every day,” says Reggie Browne, a principal at market maker GTS with a long history developing the ETF business. “How do you go about calculating fair value for something that doesn’t trade? The ETF is priced minute by minute, not a static NAV.”
Thanks @davfor I use incognito, too. Tried the close window for subscription and was happy this time. I also use VPN, which causes some interesting connects to sites.........as they think the browser is a BOT.
Comments
Good news. Overall there isn't much difference in performance between the index type ETF & mutual funds despite all the gyrations.
From Morningstar (I couldn't figure how to copy the page directly as there is no copy image location for the page on my browser):
Total Ret 1-Day 1-Week 1-Month 3-Month YTD 1-Year 3-Year 5-Year 10-Year 15-Year
VBMFX 0.02 0.49 -0.91 2.88 3.56 9.77 4.73 3.25 3.77 4.27
BND -0.05 0.11 -1.03 2.66 3.16 9.55 4.72 3.28 3.84
SWAGX 0.10 0.70 -0.82 2.89 3.41 9.68 4.73
SCHZ 0.33 -0.16 -1.49 2.16 2.75 8.91 4.49 3.12
This ETF.com 9 minute video link will help some understand more about bond etf functions.
Take care,
Catch
Here are a couple more excerpts:
I use incognito, too. Tried the close window for subscription and was happy this time. I also use VPN, which causes some interesting connects to sites.........as they think the browser is a BOT.