Move VUSFX to VSCSX?

[chang]

Starting a new thread with this post. 

Every now and then I wonder if I should edge back into S/T with my VUSFX ("cash"). VUSFX is yielding 0.37% with an average duration of 0.9 yrs and 45.5% BBB-rated and below.

VSCSX is yielding 0.80% with a duration of 2.8 years and 47.5% BBB-rated and below. (For comparison, VBIRX is yielding 0.48%, duration 2.8 years and 13.1% BBB and below. Of course, VBIRX / VBILX were the funds to own in March 2020, but I am assuming we're not going to experience that again.)

Could be that I ought to shift all my VUSFX to VSCSX. The 1Y chart is shown below. Thoughts? Is it safe to take on more duration risk (ST/IT) with IG bonds? Is VUSFX excessively conservative?

VG pages:
investor.vanguard.com/mutual-funds/profile/VUSFX
investor.vanguard.com/mutual-funds/profile/VSCSX

Attachments:

[paulr888]

Hi Chang. Yes, VUSFX is too conservative. Ditch it. Merriman prefers VFSUX over VSCSX for little better yield, lesser duration and better performance in last year. But Gundlach is not liking corporate these days so I would place a bet on 2. I always like to pair. Of the 3 I currently use, DBLSX and GILPX are doing best in last year. Good luck.

[chang]

Jul 23, 2021 5:37:04 GMT paulr888 said:

Hi Chang. Yes, VUSFX is too conservative. Ditch it. Merriman prefers VFSUX over VSCSX for little better yield, lesser duration and better performance in last year. But Gundlach is not liking corporate these days so I would place a bet on 2. I always like to pair. Of the 3 I currently use, DBLSX and GILPX are doing best in last year. Good luck.

Something about VFSUX and VFIDX never attracted me. Officially "actively managed" funds, but the same managers run a bunch of funds (including VUSFX and VWETX) with easily $100s of billions, they have hardly any of their own money in the funds, and the results are just "okay". Frankly, unless I think active managers are fantastic, I'll go with index funds.

VFSUX isn't really doing any better than VSCSX over the last 1Y, and worse over 3Y.

"But Gundlach is not liking corporate these days so I would place a bet on 2." Well, I already have more than 2. I own VWEAX (HY); sometimes I think of VUSFX-VWEAX as a barbelled pair. The same could be said of VSCSX-VWEAX. Of course, Gundlach probably wouldn't take any comfort in that.

I also own DODIX and (recently) RCTIX, both of which branch out of corporates. I don't think I need to add anything new; I am probably over-diversified already. But to be clear, VUSFX is by far my largest holding, so if I move it to VSCSX, then that will immediately become my largest holding.

[paulr888]

Now you are disclosing more information and I can see a strategy.  I retract my dislike of VUSFX for you considering what all else you have.  I get a sense that your bond stable is working good for you as a group, so unless you find something you really hate, I wouldn't change.  For example, several months ago I hated the vol with FXNAX and its Treasuries and it didn't play the role I wanted so I dumped it.  I don't get a sense that you hate anything you are holding. 

[chang]

paulr888 you perceive correctly. My "stable" is working fairly well, and I don't think anything is seriously out of kilter. I'm more or less where I want to be in the bond space. Besides what's mentioned above, I have some IG exposure (IT/LT) from VWIAX and VGWAX, which I consider "sleep easy" funds.

However, as I said, VUSFX is very conservative and I am wondering whether to push that exposure a little further out on the limb, to VSCSX.

Of course, wouldn't that be equivalent to just moving some dough from VUSFX to VWEAX? There's more than one way to assemble a barbell.

(I often think about pouring some VUSFX into VWEAX — I did that once last year — but I usually get lukewarm feedback here. VWEAX is not a forum favorite. Not that that's ever stopped me…)

A chart showing VUSFX, a pair of S/T and I/T funds, and VWEAX gives some perspectve. see below:

[yogibearbull]

March 2020 can be seen as stress-testing for lots of things.

One of my observation was that among ST (a huge category), corporate-ST such as VSCSX/VCSH were 2x-3x more volatile than mixed government-corporate-ST such as VBIRX/BSV. I used to hold only VSCSX but now I hold a mix of VBIRX and VSCSX.

Ultra-ST VUSFX, VUSB, ICSH, JPST can be m-mkt alternatives (I use ICSH).

[paulr888]

For me guys it all comes down to portfolio construction, what your other bond funds are, and your personal likes and dislikes. There is no definitive best way to do this. Sort of like a golf swing. Myself, one thing I know about my personal likes/dislikes is I don't like a big chunk of Govies in my tier 2 bond funds (tier 1 being Fidelity Core and MM). VBIRX works for YBB but would give me some indigestion for the reason stated. I also don't like the 10 year performance and the near term performance. This is the trickiness in solving this puzzle. It becomes individualistic. Someone may chime in and Sharpe and Sortino and SD this puzzte and conclude the best way to do this but it won't be for me. Good luck and go with your gut.

[gman57]

I like VUSFX/VWEAX. VUSFX is my cash alternative but most of my holdings are in VWEAX. What's not to like with the 6%+ 1,3,5,10yr returns. VWEAX has some of the most conservative HY I've found. I  split 40%/40%/20% of my bonds in PIMIX,VWEAX,VUSFX.

[paulr888]

Here is my final thought on this. Wrt VWEAX having some of the most conservative HY around, I don't know that and don't even know how to evaluate that. HY, like IG and floating rate and others, for me is a tactical bond asset and such assets ebb and flow with respect to value and when is a good time to buy, hold or sell. That is why I never buy that asset myself and I let my bond PMs make those decisions. From April '07 to 'Nov '08 it dropped almost 40%. Gets back to my belief there is no clear, obvious best way to do this. We can look at all the data and statistics, but everyone has an individual mindset, style, tolerance for unknown, the undeterminable and risk. An interesting observation I will conclude with is this. I've been following forums since I retired 8 years ago and I've noticed a change that I did not see over those years. I see more and more investors embracing HY, both taxable and Municipal funds. My guess it is related to our low interest rate, low yield environment. For the guy that has an all bond OEF portfolio, how does he get his required return without the HY space. Seems to be working for him and all the others. I find it interesting at the least. Good luck to all of us.

[Chahta]

Why not VFSTX if you re looking for a fund.

[yogibearbull]

Chahta , the Admiral class VFSUX (active ST bond fund; nice ticker if parsed as V-F-SUX ) of Investor VFSTX has been mentioned.

[anitya]

Jul 23, 2021 12:18:19 GMT yogibearbull said:

March 2020 can be seen as stress-testing for lots of things.

One of my observation was that among ST (a huge category), corporate-ST such as VSCSX/VCSH were 2x-3x more volatile than mixed government-corporate-ST such as VBIRX/BSV. I used to hold only VSCSX but now I hold a mix of VBIRX and VSCSX.

Ultra-ST VUSFX, VUSB, ICSH, JPST can be m-mkt alternatives (I use ICSH).

Totally agree.  If one is in a Vanguard brokerage, I would go with VUSFX vs the ETFs.  The ETFs can go to irritating levels of discount during stressed market conditions - 6-7% is not unheard of, just check March 2020 data.  VUSFX is TF in most other brokerages (one can get a waiver in some).