BND: Your Money Deserves Better

seekingalpha04-12

The move in interest rates has negatively impacted various asset classes, including real estate stocks, utility stocks, and bond funds like Vanguard Total Bond Market Index Fund ETF Shares.The BND ETF...

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MicroStockHub The move in interest rates that accelerated earlier this week on the hot CPI print has taken with it a variety of asset classes, including real estate stocks, utility stocks, and of course, bond funds. The big mega player in this space is the Vanguard Total Bond Market Index Fund ETF Shares (NASDAQ:BND), a $330+ billion fund that holds thousands of income securities. The fund seeks to track a broad, market-weighted bond index that provides exposure to taxable investment-grade, U.S. dollar-denominated bonds, and does not include any tax-exempt or inflation-protected bonds. BND is a way for investors to seek a reliable stream of income that is free of concentration risk. However, the environment for bonds worsened earlier this week, and I think there are better options if you’re looking for a meaningful yield. I’m initiating BND accordingly with a strong sell. The fundamentals Before we get to why I don’t like BND right now, let’s first level set on some of the fundamentals. I mentioned it’s an absolutely gargantuan fund, both in its $300+ billion in assets under management, or AUM, but also the vast holdings of thousands of individual securities. It’s diversified beyond belief, which is required given the amount of AUM; allocating more than $300 billion across taxable, investment grade bonds means you have to buy a bunch of everything. This composition means liquidity is outstanding, as you would think given its size, and BND earns high marks for risk. It’s extreme diversification inherently limits risk, which is probably attractive if you’re looking for a reliable stream of income, but don’t expect any miracles here from a capital appreciation perspective. Volatility is extremely low, at about half that of the S&P 500 (SP500), which itself isn’t particularly volatile. Again, most likely an attractive trait for those that would seek to own something like BND, but it limits upside potential as well as downside risk. BND is so cheap to own that it’s nearly free, so expenses are negligible; good for keeping your returns in your account rather than funneling them to the fund manager. Vanguard is arguable the best-of-the-best when it comes to constructing funds, and BND is no exception. Given all of this, BND is an outstanding fund for what it is; it’s constructed very well, run efficiently, and does exactly what it sets out to do. The problem is that the environment we’re in is just wrong for funds like BND, and I think you are better off just buying Treasuries, or even a savings account. The reason is that the yield just isn’t attractive when you can get a much better payout from Treasuries, or a high-yield savings account. The stated yield on Seeking Alpha is currently 3.35%, while the 30-day SEC yield is 4.57%. Either way, what I said about Treasuries and high-yield savings accounts remains true. If you can own a similar yield that is tax-free (in the case of Treasuries), or have a high-yield savings account with no price risk, why in the world would you want BND? I can’t answer that. An ugly outlook BND’s technical outlook is pretty awful right now, and given we’ve just seen an acceleration in the selling of bonds with the CPI print, it is likely to get worse before it gets better.   StockCharts The fund is in a clear downtrend channel, and unless/until that changes, it’s a sell. The fund is well below the major moving averages, and the PPO is in negative territory. Bounces are quickly sold, and again, I simply see no reason why someone would want to own this fund. The correlation to Treasury yields is in the bottom panel and unsurprisingly, it’s extremely negative. That’s to be expected, given that it’s essentially saying the price of BND and the price of Treasuries move in virtual lockstep. That makes logical sense, but as I always say, it’s worth the effort to verify assumptions with facts. The 10-year yield (US10Y) made a breakout earlier this month that was cemented this week with the CPI-related move.   StockCharts I believe we’ll see the 10-year at least test the 4.7% to 4.8% area I have highlighted above, and if that happens, BND will move lower in sympathy. This chart is looking more and more bullish for yields (which move inverse of bond prices), so as long as that holds, BND should continue to suffer. Unlike the BND chart, we have all the makings of a continuation of the bullish move here. The yield is above the major moving averages, the MAs are rising sharply, and momentum is well into bullish territory and rising. There’s no reason to think yields are going to slow their ascent anytime soon, as the news catalysts that generally help drive yields are now a few weeks away in the form of new inflation data. We’ll see, but right now, I don’t see any reason yields shouldn’t continue higher, and consequently take BND lower. The bottom line As I said, BND is extremely well constructed and Vanguard is legendary in its ability to create a low-cost fund, with BND being no exception. I have no problem with the fund itself, but I do think it’s simply the wrong place to be. Beating BND’s yield is far too easy with a simple CD or savings account, or even Treasuries that offer a federal tax-free income stream. I’m not recommending Treasuries right now given my view on yields; I’m simply making the point that if it’s income you’re after, there are numerous better choices than BND right now. There will be a time to buy BND, but that time is not now.  Given all of this, I’m siding with the Quant Rating and slapping a Strong Sell on BND.","kind":null,"is_publish_news":null,"is_publish_highlight":null,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.22.4","shortVersion":"4.22.4","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2426343177"}