I have been using CDs and MMs for the past several years in my retirement IRA portfolio. As those CDs mature, I am now considering adding some very low risk bond oefs, which can produce at least 4% total return. I am interested in low volatility funds, which have done well in down markets, and would be interested if other investors have some favorites they would recommend. Thanks in advance for your bond oef ideas.
Comments
Also - have read good things about Fidelity’s FSEC
https://www.morningstar.com/funds/xnas/wcpnx/risk
Might be worth a look for another holding in the DHEAX ballpark, if only to spread the risk a bit in what's been and may well continue to be an attractive space.
I am pretty familiar with these funds. DHEAX use to be one of my major bond oef holdings before the 2020 crash. Thanks for the recommendations.
https://www.mutualfundobserver.com/discuss/discussion/comment/196330/#Comment_196330
The testfolio comparison of those funds from my post: https://testfol.io/?s=0BFRT0Myjgd
Many of the funds mentioned in this thread have M* risk scores around 3-5 (out of 100). ICMUX (13) and RCTIX (9) are a little higher as reflected in their std of 3+. Of course the funds with intermediate durations, WCPNX (14), FSEC (16), and DODLX (21) tend to have a bit more risk.
DBLSX, short term bond, Risk Score 5
BSBIX, short term bond, Risk Score 6
LALDX short term bond, Risk Score 9
FPFIX, nontraditional, Risk Score 9
HOSIX, Multisector, Risk Score 10
RSIIX, High Yield, Risk Score 8
WDHYX, High Yield, Risk Score 12
Ultra Short Term Bond funds are in a very low risk category, but I wonder if their total returns will start decreasing and fall below my 4% TR threshold, much like fixed income categories like CDs, due to their high usage of treasuries and investment grade bonds. If you subscribe to the falling interest rate scenarios, then maybe junkier bond oefs will benefit due to their higher correlation to equities. The M* risk numbers largely shadow Standard Deviation scores over past 3 years, but some of the riskier categories have some standout funds that handled risk much better than others.
Morningstar has been tweaking its stats.
Its current MPRS risk scoring system is no longer relative to the categories. It's an absolute scoring system that can be used to assess different asset classes as well as multi-asset funds. Of course, each Morningstar category would have typical MPRS ranges. This is also why MPRS results are quite similar to much simpler SD based risk systems.
https://pdfhost.io/v/E..d~yHtX_MStar_MPRS_102024
A reason one might want to consider ETFs is that they open up a wider range of fund types. IG floating rate funds like FLOT and FLRN. (OEF floating rate funds are typically below IG.) AAA CLOs (I'm still on the fence with these and want to see how they react if/when the Fed drops rates) like PAAA.
Still thinking about what could replace CDs, you might also consider fixed annuities. They yield more than CDs. So they're reasonable substitutes in IRAs even though you don't get "extra" tax sheltering with them.
As yogi posted, TIAA's IRA annuity is currently yielding 4.0% and is liquid.
If you're looking to lock in rates for a few years, fixed rate annuities can get you rates north of 4% for 3+ years. See, e.g. Fidelity's rates. Fidelity sticks with sold rated issuers. You can get better rates by looking at less sound issuers, but that's taking on more risk.
Here are Schwab's rates. The first set of offerings, from Midland National, are somewhat higher. But Midland National is rated only A+ by all the ratings agencies, vs AA range or better for the other insurers.
The major downside of these fixed annuities is that you're locking in the investment for a period of years (3+ with Fidelity's offerings). Onerous penalties to get out early.
Like star ratings, risk ratings are subject to distortion with funds that are difficult to classify.
1/1/2020.
Even RPHIX lost more than 3% in Q1/2020.
Since 2023, I no longer hold more volatile funds for months. Only short term for 1-2 weeks trades. Think ICMUX,PIMIX,RCTIX.
I have been holding funds with low SD with good performance.
Of course, I add timing and always near the exit.
Since early 2023 bond OEFS had one of the best performances for 2 years; several had very low SD and made 20% in 2 years. Think HOSIX, CLOZ which I held for many months.
ICMUX made more than HOSIX in these 2 years by 1%, but I preferred HOSIX.
chart (https://schrts.co/pMytFkvN)
2025 proved again that volatility can show up any time. The only way was to be out.
Since mid-April bond OEFs did great.
Bottom line: there are no funds with very low SD (under 1-1.5% loss any time) with good LT results that you can hold for years.
But, bond OEFs should perform well in the next 1-1.5 years.
So, looking at the last 3 years...
HOSIX would be a good choice with dist close to 6%. The manager, whom I spoke with, is about low SD.
SEMIX/SEMRX and DHEAX are also good and similar. SEMIX has lower SD per the chart.
Chart (https://schrts.co/CuANzpzj)
BUBIX looks good, but I prefer funds that can make 1-2, maybe 3% more annually.
Just YTD, the 3 funds I mentioned lost about 0.5%, but are 1-2% ahead of BUBIX.
Someone who is very risk averse and holds mostly bonds, would love to make another 2% more annually.
Disclaimer: currently, I don't own any of the funds above.
TIAA product that @msf mentioned is available only in TIAA plans and TIAA IRAs (recently made accessible to most). You will need an account at TIAA.
However, those inclined to go the annuity route may look at MYGAs - multi-year guaranteed annuities. Beware that once in an annuity, there are limited exists before 59.5 - not a limitation for older retirees. Insurance companies can offer better rates than CDs because the annuity money is almost captive, long-term money. Of course, 1035 exchanges are possible to other annuity providers on maturity or after the surrender periods expire.
https://www.annuityadvantage.com/annuity-rates-quotes/multi-year-guarantee-annuities/?sort=guarantee_period_yield&limit=20
I looked for all bond fund (risk tab) + sorted by Sharpe ratio(risk/reward) + SD<2.
See this (<a href="https://fundresearch.fidelity.com/fund-screener/results/table/risk/sharpeRatio3Yr/desc/1?assetClass=TBND&category=BL,CI,CL,CS,EB,GI,GL,GS,HY,IB,IP,MU,NT,PI,RR,TP,TW,UB,WH,XF,XP&order=assetClass,category,standardDeviation&standardDeviation=LS,2">link)
Then I switch to the overview tab, see (link).
To see 1,3,5 year performance.
The best funds for 3 years are
HOSIX leads the pack by a wide margin with Sharpe>3 and SD=1.28 and 3 years average of 9.1%. $49.95 fee at Schwab
LCTRX is great too. NTF at Schwab
CBLDX, SEMIX, SCFZX, DHEAX
The best for one year
HOSIX+DHEAX
For YTD
DHEAX, CBLDX, HOSIX