Cash Is Trash; Choose Bond Funds Instead

johnN

Cash Is Trash; Choose Bond Funds Instead

https://www.google.com/amp/s/seekingalpha.com/amp/article/4357202-cash-is-trash-choose-bond-funds-instead

Jul. 06, 2020 5:08 PM , PRRIX, PTTRX...8
The average money market fund is now offering dividends of about 0.09%.
Bond fund/ETFs dividends are quite low too but much higher as compared to money market funds.
Since the Fed has as much as promised not to raise rates through 2022, there appears little chance of higher dividends for money market funds.
But investors worried about stocks have poured cash into bond funds/ETFs raising NAVs; thus, especially on a total return basis, bonds appear to be a much better choice.

Rbrt

Here’s A. Gary Shilling advocating bonds.
In an interview just up on YouTube. He also thinks stocks will fall from here (+/- here) into 2021. I don’t see where bond yields can go much lower.

Crash

Has Schilling ever been right?

Crash

who was that perpetual doomsayer from California that used to be all over CNBC?

FD1000

Crash said:

Has Schilling ever been right?

06/2011(link) "New recession begins next year, Shilling says" = wrong

02/2013 (link) "Gary Shilling: Why You Should Sell Stocks And Buy Treasurys" = way wrong

11/2016(link) "A Trump win might be bad for stocks" = wrong

hank

Stocks can always drop 40%. Surprise. Surprise.

Hell, they fell something like 25% one afternoon while I was driving home from work. (‘87 maybe?).

Crash

Crash said:

who was that perpetual doomsayer from California that used to be all over CNBC?

Oh, ya. I just remembered: Peter Schiff. "The sky is falling!"

Shostakovich

Schilling is a character actor.

hank

“The average money market fund is now offering dividends of about 0.09%.”

That doesn’t sound right. I don’t invest in money market funds, so have no idea what the better ones return. I just checked my cash substitute, TRBUX. At the end of June Fidelity is showing a 30-day yield of 2.31% with an average weighted maturity of only 1.3 years and a duration of just 1 year. YTD it’s up about 2% - but provided a wild ride during the March / April period.

TRBUX

Rbrt

Fidelity has me in 3 different MM funds: FDZXX which has a 1 yr return Of 1.37%.
FDRXX 1.12%
SPAXX 1.07%
Certainly not a way to make real returns but they are stable.

msf

Money market funds, not bond funds (short term or otherwise). Now offering yields, not what they paid the trailing twelve months.

This piece likewise extrapolated on past performance. It gave current (SEC??) yields, but did not comment on them. Rather, it looked at 4 month performance and simply multiplied by 3. It didn't even bother to compound the return. ("if the above funds rise at the same rate over the next 8 mos.", and if pigs could fly ...)

The 0.09% figure could be high, since "average" wasn't defined, nor data source identified. Does it include institutional funds or just retail funds? Is it dollar weighted? I suspect the figure is in the right ballpark give or take a factor of 4 (or 1/4), depending on how it is computed.

7 day yields for Fidelity MM funds:
FZDXX: 0.10% (0.04% without fee reduction)
FDRXX: 0.01% (-0.10% without fee reduction)
SPAXX: 0.01% (no fee reduction)

MikeM

0.09% for the Schwab MM SWVXX.

@Rbrt, as of today I see FDRXX at 0.01 and FZDXX at 0.07. Even down from msf's info dated 6/30. Crazy low yields all over for MMs.

hank

msf said, FDRXX: 0.01% (-0.10% without fee reduction) Wow. We’ve now arrived at negative interest rates (at least without fee waivers). I suppose it’s happened before with mm funds. But still a startling proposition.

msf

@MikeM - thanks for reminding me. Recently I noticed this discrepancy at Fidelity, that you had to dig for the really current yields. I only noticed it by accident.

Fidelity's propensity for quoting old rates means that you have to be careful when comparing with MMFs at other companies.

You'll find Vanguard MMFs (and its other funds) here. The SEC yield column is current to the last close.

Here are T. Rowe Price's MMFs. The 7 day (SEC) yield columns are likewise current. I've been trying to figure out how TSCXX is levitating (0.25% SEC yield, with no fee waiver).

Rbrt

Ya’ll have ruined my day!

Old_Skeet

My advisor reccommended PSHAX for some of my equity sell proceeds that I'm now in the process making. Yield is about 2.2%. It does have some volatility associated with it; but, seems to recover nicely. However, I'm favoring PCOXX as I might need this cash to make another equity spiff buy during a stock market swoon and don't want to get caught with PSHAX being down. With this, I might watch it and move into it with a dip buy sometime in the future.

MikeM

@msf, you are right, TSCXX would be levitating at .25% but I I don't believe it. I took a quick look on Yahoo and it shows the 7 day yield at 0.1% like most other MMs. Clerical or updating error maybe(?)

bee

I was impressed with the way VFISX navigated the pandemic pull back (red in chart linked here).
https://screencast.com/t/Lz1v3cZkO

msf

What's the saying? Treasuries are the last refuge of a scoundrel? Nope, that's not quite right.

Still, Treasuries are the last refuge of lots of people. So they tend to hold up better than higher credit risk securities. And when the whole market, including Treasuries, are realizing interest rate risk, short term holds up better than long term.

So short term Treasury funds including VFISX held up better than other bond funds last March. But VFISX didn't "navigate" especially well. Here's a M* chart comparing the March 1 - May 1 performance of this fund vs. its autopilot (index) peer VSBSX. The latter gave both a smoother ride and better performance.

They have similar durations, currently 2.0-2.1 years. The Vanguard Index tracks the 1-3 year index. Notice that Barclays 1-5 year Treasury index, with a duration of about 2.5 years had a tad more volatility. That was the price for its better performance as the overall interest rate trend continued downward.

Perhaps the difference in performance between VFISX and VSBSX can be explained by the fact that the former is allowed to hold up to 20% in agency bonds, while the latter holds only Treasuries.

davidrmoran

I guess because of its recent rise, the last few months, though, VFISX outperforms VSBSX nontrivially when looked at over 1-2-3-4-5-6mos and ytd.
(My trivial question would be why VGSH trivially outperforms VSBSX most of the time too.)

msf

It's hard to see how much value active management could add to treasury funds. There's essentially zero credit risk. The only dimension to play with would seem to be duration.

The short end of the yield curve is usually the steepest, so perhaps there really is some play in the 1-5 year range. I'd have to look more closely at what VFISX owned day by day (and how long it is allowed to go with maturities) to explain the performance. But it doesn't surprise me.

My comment was really focused on how it "navigated the pandemic pull back". That one, brief, not so shining moment of the market.

With respect to the different performance of Vanguard Short Term Treasury Index Fund share classes, it appears to be a 1 basis point difference (based on NAV) 1,3,5,10 year. It could have to do with dividend timing and/or different ERs since last year.