Running my own bond fund, comparing to VAB
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Thread: Running my own bond fund, comparing to VAB

  1. #1
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    Running my own bond fund, comparing to VAB

    Starting September, I began using a dedicated account for my fixed income. I'm trying to see if I can replicate what VAB does, but with direct ownership of bonds. My portfolio is similar, around 10 year maturity with mostly govt bonds plus a few GICs.

    I'm comparing to my broker-generated monthly performance report, which includes fees and isn't affected by cashflows. Current results seem to be tracking VAB well, but it will take at least a year of data to know.

    Last edited by james4beach; 2016-12-02 at 05:35 PM. Reason: removed table, see next post

  2. #2
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    Slight modification. The Vanguard web site is probably more accurate, so I'll grab the monthly VAB data from there, using NAV.
    https://www.vanguardcanada.ca/indivi...2##performance

    (Regarding VAB: note that quarterly/annual performance in terms of share price chronically falls shy of their ideal NAV performance -- does anyone know why that is?)

    My monthly performance is tracking VAB reasonably well so far:

    Month VAB % My % Difference
    Sept 2016 0.23% 0.44% +0.21
    Oct -1.00% -1.29% −0.29
    Nov -2.19% -2.01% +0.18
    Last edited by james4beach; 2016-12-02 at 04:26 PM.

  3. #3
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    Since you posted in the tax section about being able to convert interest to capital gains, is any of this likely to happen in your bond account?


    Thanks for the update.


    Cheers

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  5. #4
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    I hope so I mostly hold discount bonds so this should be quite tax efficient. While the underlying securities earn around 2% yield, only about 1.6% is taxable interest income coupons. That means that if I left the account alone and let the bonds mature, I'll get a total return breakdown of around 1.6% coupon interest + 0.4% cap gains = 2.0% yield

    Compare that to VAB, which contains 3.3% coupon interest (the highly taxed stuff). So I think my "fund" has 1.6 vs 3.3 or half the taxable coupons. If I have the same total return, that makes mine much more tax efficient than VAB.

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    Quote Originally Posted by james4beach View Post
    I hope so I mostly hold discount bonds so this should be quite tax efficient. While the underlying securities earn around 2% yield, only about 1.6% is taxable interest income coupons. That means that if I left the account alone and let the bonds mature, I'll get a total return breakdown of around 1.6% coupon interest + 0.4% cap gains = 2.0% yield

    Compare that to VAB, which contains 3.3% coupon interest (the highly taxed stuff). So I think my "fund" has 1.6 vs 3.3 or half the taxable coupons. If I have the same total return, that makes mine much more tax efficient than VAB.
    If you earn 2%, what do you have left after tax (whether CG or Int)? And how does that compare with the inflation rate?

  7. #6
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    It's a pretty low after tax return. I do it for the bond asset class exposure, not for particularly high returns. If I can get similar to VAB performance but more tax efficient, that's a win

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    Quote Originally Posted by james4beach View Post
    It's a pretty low after tax return. I do it for the bond asset class exposure, not for particularly high returns. If I can get similar to VAB performance but more tax efficient, that's a win
    After reading this article about three investing legends predictions of a major market crash, I am interested in how to deploy cash. I would like it to at least keep pace with or beat inflation. Otherwise investing in government bonds is in effect investing at a negative return.

    Although we have substantial fixed income holdings, they are all in higher yielding, more risky corporates. No good answers, it seems. Maybe buy some gold bullion. Sell REITs & Utilities? Some advice was offered in this article: http://www.forbes.com/sites/schifrin.../#5e465f4331a8

  9. #8
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    To clarify here, I am very much trying to replicate and duplicate VAB, so assume for the sake of this thread that the investor wants bond exposure of the variety in VAB and XBB

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    With another month,

    Month VAB % My % Difference
    Sept 2016 0.23% 0.44% +0.21
    Oct -1.00% -1.29% −0.29
    Nov -2.19% -2.01% +0.18
    Dec -0.57% -0.59% −0.02

    Year VAB % My % Difference
    2016 (partial) -3.50% -3.42% +0.08

    So far so good

  11. #10
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    Now on to 2017

    Month VAB % My % Difference
    Jan 2017 -0.21% -0.06% +0.15

    Last edited by james4beach; 2017-02-03 at 12:54 AM.

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