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Long-term treasuries?

Why aren't long-term treasuries utilized more (or actually at all) in actively managed multi-sector, unconstrained, or flexible income funds? I understand the volatility of such funds but it seems that they do add value. I got to thinking about this again after looking at the prospectus for TMSRX. I believe that they would characterize this under "Style Premia" strategy which includes currency bets (as of 4/20/20 they had 1.4% total in US treasuries).

Portfolio Visualizer for:
1) VEDTX & VTSMX (70/30)
2) VEDTX & QQQ (70/30)
3) PRWCX (100)

Dating back to 1985 (admittedly a period of decreasing interest rates):

Portfolio Visualizer results

Maximum drawdown 1 yr for:
1) -17.05
2) -9.25
3) -27.17

Final balance for a $10,000 investment would be:
1) $37,914
2) $48,708
3) $29,711

I've been following such a strategy for quite some time but never had the nerve to actually invest as such. PRWCX is my largest holding & have been very satisfied.


  • beebee
    edited July 3
    Playing with your choices.

    If you create a (70/30) with VEDTX / PRWCX your results are almost identical to VEDTX / VTSMX (70/30)...actually slightly better results.

    I noticed you can only get results back to 2008.

    Using WHOSX as a replacement fund for VEDTX gets you back to 2000. Using PRMTX as a substitute for QQQ creates an interesting set of results that you'll be impressed by.

    Even more impressive equal weight WHOSX / PRMTX / PRWCX.

    I might add PRHSX as an 4 fund portfolio...maybe even PRNHX as a 5 fund portfolio.

    Thanks for the thread @zenbrew.
  • Thanks for catching my mix-up on dates (the portfolio visualizer can start as far back as 1985 but not this portfolio).
    I typically follow EDV but that only went back to 2009 so I looked at VEDTX instead which also includes 2008.

    Those other combinations are impressive.
    By using WHOSX instead you can get results back to 1998 as well.

    Then I looked at different percentages with WHOSX.

    PV results

    It looks to me that you still need a significant amount of long-term treasuries to make any real difference.

    Even WHOSX/PRMTX 50/50 still beats PRWCX.

    PV results

    Though the bottom line is, I don't think I could put 70% of my total portfolio in long-term treasuries and then just forget about it.

  • heck, VGLT and VONG 50-50 easily beat a great many things the last decade and more, not only PRWCX (VLAAX runnerup)
  • beebee
    edited July 4
    When using the PV website I like to open the "Benchmark" pull down option. Specify Ticker symbol and put in an extra mutual fund / ETF choice. This give you a fourth comparison when you run your historical query. Remember this is historical data and though history often rhymes long term treasuries will not have the tailwind of lowering interest rates unless we go negative... which is possible.

    I like this site for comparing my benchmark asset allocation funds...VWINX, PRWCX, BRUFX, (pick yours)...against your "alpha dogs". PV website help me see (at least form a historical perspective) if a long term persistence of out performance by these "alpha" funds ever existed compared to my benchmarks. Tech and Health Care are two sectors that I have identified as having persistence. I included PRNHX because of its stellar performance in the small cap space (its presently over weights Mid - cap Tech and HC & Industrials).
  • Can't find a good page on this now, but there are only two reasons I know of to hold long term treasuries.

    One is immunization. If you like the current yield and there's something you're saving for many years down the road, buying a long term treasury or a few to get the right duration blend is a reasonable strategy. Similar to buying a CD for a targeted purpose.

    The other is speculation. If you believe interest rates are going down, you would want to own the most interest rate sensitive, i.e. longest term, bonds. This is considered a speculative strategy - a bet on interest rates - because the difference between 10 and 30 year yields otherwise tends not to justify the additional risk.

    Right now 10 years are yielding 0.69%, and 30 years are yielding 1.43%. Is it worth it to you to lock in a 1.43% return, a 3/4% difference in yield, for 30 years in order to bet on interest rates going down further?

    OTOH intermediate term bonds can still have a place in a portfolio as a backup for cash in one's decumulation phase. For example, one can keep 3 years in cash or "cash like" investments, and another 4-6 years in intermediate term bonds, with the rest in longer term investments. This is effectively using a bond immunization strategy, not for a long term purpose, but for a midrange one.
  • edited July 4
    Though the bottom line is, I don't think I could put 70% of my total portfolio in long-term treasuries and then just forget about it.” +1

    Don’t confuse / conflate long-term Treasuries with long-term Treasury funds - or, for that matter, any type of fund investing in bonds. Two different animals. Funds respond much differently to rising / falling rates. That’s because changes rates affect fund flows. If rates fall and prices rise, more investors likely buy in, causing manager to purchase more bonds at higher prices. Prices fall? Investors flee, forcing manager to sell into a weak market at potentially lower prices. Than there’s the matter of fees and operating costs associated with funds that direct bond holders don’t face.

    Your question is a good one. I’m but a casual observer of bonds. But in watching multi-asset funds of all stripes over the years, I get the impression that out beyond the 10-15 year duration, you don’t need a lot of those to significantly impact a fund’s volatility and performance. I rarely see any multi-asset fund that exceeds 10-15% in long term Treasury holdings. No doubt, there are some. In essence, a little bit of this asset delivers a big bang in a diversified portfolio. They make a great hedging tool - precisely because they tend to do better in weak equity markets and pack a disproportionate amount of punch.

    Not topical - But there’s an even more potent creature called “zero coupon Treasuries”. For additional enlightenment, you might like to read up on those.
  • @bee, Thanks for that tip. Having a 4th option does help.

    @hank, Ha! I did mean long-term treasury funds. Thanks.

    @msf, I agree. Though I might add that it's also speculative as a "safe haven" for volatility (maybe like gold, though less volatile).

    It's just I'm surprised that I rarely see it used as an asset class in asset allocation, multi-sector, or unconstrained funds. It seems that they would add value & diversification.
    Well, maybe that's why the portfolio managers get paid the big bucks (& they don't ask my opinion)!

  • edited July 4
    “It's just I'm surprised that I rarely see it used as an asset class in asset allocation, multi-sector, or unconstrained funds. It seems that they would add value & diversification”

    I don’t know if this answer satisfies - but a good house with its own highly competent credit research department can do a lot better playing in the corporate bond sector than it can with Treasuries. But msf induced me to look at a couple multi-asset funds.

    Here’s what Price’s Spectrum Income fund (RPSIX) does. Its latest bond holdings (from Yahoo) show 0% in U.S. government bonds, 33% in (other) AAA and an average duration of about 5 years. Since the fund typically invests 15% (more or less) in an equity fund, the percent allocated to AAA is lower than might appear at first glance.

    TRRIX is one of Price’s conservative balanced funds. Normally it targets a 60% bond, 40% equity mix. According to Yahoo the fund is currently underweight bonds by 8% at 52% of portfolio. Like RPSIX, the fund holds 0% U.S. government bonds. And, like RPSIX, they’re holding the duration to just over 5 years. The fund hews to a higher credit quality than RPSIX - with 59% of bonds rated AAA. ..... T. Rowe is right a lot more often than they’re wrong on the long term outlook. Problem is most of us consider 6 months long term, while they’re looking out several years. Patience pays off.

    Just a personal perspective (not applicable to others): I view bond funds as a “speed-brake“ that should reduce volatility during deep stock market downturns. Earning the paltry income available today doesn’t interest me. After one of my sources, Bill Fleckenstein, cautioned his readers to avoid lower credit grades last March, I’ve strived to stay with mostly intermediate-term bond funds that invest primarily in higher credit quality. AAA, AA A, BBB all fall within that zone. Yahoo is a great spot for viewing a fund’s bond credit quality / duration / maturity. I should add that Bill made that call a couple weeks before the Fed announced their intent to buy corporate bonds. So I don’t know if the advice still stands. Suspect so.
  • TRP has been doing this in most of its asset allocation and retirement funds for a few years now. They're doing more barbelling than timing the market as they give you both long treasuries and short TIPs with mild adjustments in allocation.

    PRWCX goes in-and-out, i.e. market times. I've seen them do this twice in the last 10 years, buying with good timing but selling too soon.

    Price's fund, TRULX, gets a lot of its money from the allocation/retirement funds. Its AUM is not too different from when I bought it 1-1/2 years ago. I wonder if this stabilizes it from the rush inflow situation.
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