VGLT: More Favorite Bond Holding In A Rate Declining Cycle

seekingalpha08-06

franckreporter/iStock via Getty Images Introduction Following the example of Warren Buffett, who has been selling his leading equity stocks, such as Apple (AAPL) and Bank of America (BAC), and raising...

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Keep in mind that we have not seen the large","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"IE00BN29S564.USD":"JANUS HENDERSON BALANCED \"A3\" (USD) INC","IE00BJJMRX11.SGD":"Janus Henderson Balanced A Acc SGD","IE00B4YYXB79.USD":"PIMCO BALANCED INCOME AND GROWTH \"E\" (USD) ACC","BK4554":"元宇宙及AR概念","FWD.AU":"FLEETWOOD LTD","BK4515":"5G概念","BK4553":"喜马拉雅资本持仓","BAC":"美国银行","IE00B1XK9C88.USD":"PINEBRIDGE US LARGE CAP RESEARCH ENHANCED \"A\" (USD) ACC","TLT":"20+年以上美国国债ETF-iShares","BK4533":"AQR资本管理(全球第二大对冲基金)","IE00BJLML261.HKD":"HSBC GLOBAL EQUITY INDEX \"HCH\" (HKD) ACC","BK4566":"资本集团","LU0320765646.SGD":"FTIF - Franklin Income A MDIS SGD-H1","IE0004445015.USD":"JANUS HENDERSON BALANCED \"A2\" (USD) ACC","IE00B5949003.HKD":"JANUS HENDERSON GLOBAL TECHNOLOGY AND INNOVATION \"A\" (HKD) ACC","BK4559":"巴菲特持仓","AAPL":"苹果","BK4550":"红杉资本持仓","IE0009G5SDU7.USD":"PIMCO BALANCED INCOME AND GROWTH \"M\" (USD) INC","FDN":"First Trust Dow Jones Internet I","IE000ITXATA3.USD":"PIMCO BALANCED INCOME AND GROWTH \"M\" (USD) ACC","IE000YTNTUN2.SGD":"PIMCO BALANCED INCOME AND GROWTH \"M\" (SGDHDG)INC","LU0477156797.USD":"HARRIS ASSOCIATES GLOBAL EQUITY \"RE\" (USD) ACC","VGLT":"美国长期国债ETF-Vanguard","FWD":"AB DISRUPTORS ETF","LU0130103400.USD":"Natixis Harris Associates Global Equity RA USD","BRK.B":"伯克希尔B","LU1201861165.SGD":"Natixis Harris Associates Global Equity PA SGD","BK4512":"苹果概念","LU1366333091.USD":"FIDELITY GLOBAL FOCUS \"A\" (USD) ACC","LU0256863811.USD":"ALLIANZ US EQUITY \"A\" INC","LU1894683348.USD":"AMUNDI FUNDS US EQUITY RESEARCH VALUE \"A2\" (USD) INC","LU1201861249.SGD":"Natixis Harris Associates US Equity PA SGD-H","LU1571399168.USD":"ALLSPRING GLOBAL LONG/SHORT EQUITY \"IP\" (USD) ACC","LU0980610538.SGD":"Natixis Harris Associates US Equity RA SGD-H","IE00B19Z3B42.SGD":"Legg Mason ClearBridge - Value A Acc SGD","IE00B775SV38.USD":"NEUBERGER BERMAN US MULTICAP OPPORTUNITIES \"A\" (USD) ACC","IE00B3S45H60.SGD":"Neuberger Berman US Multicap Opportunities A Acc SGD-H"},"translate_title":"VGLT：利率下降周期中更受欢迎的债券持有","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"VGLT":1,"US7Y.BOND":1,"US6M.BOND":1,"US5Y.BOND":1,"US3Y.BOND":1,"US30Y.BOND":1,"US2Y.BOND":1,"US12M.BOND":1,"US10Y.BOND":1,"FWD":1,"FWD.AU":1,"FDN":0.9,"BAC":0.7,"TLT":0.7,"AAPL":0.7,"BRK.B":0.7,"US912797GK78.BOND":0.6,"US912797GL51.BOND":0.6,"US912797GW17.BOND":0.6,"US912797HE00.BOND":0.6},"content_text":"franckreporter/iStock via Getty Images Introduction Following the example of Warren Buffett, who has been selling his leading equity stocks, such as Apple (AAPL) and Bank of America (BAC), and raising cash to a record level, it is the time for me to consider increasing the fixed income portion of my investment portfolio. My current favorite choice in that category is long government bonds, for many reasons to be discussed in this article. Vanguard Long-Term Treasury Index Fund ETF Shares (NASDAQ:VGLT) is one of the best ETFs focused on long-term government debts. The ETF has a big gap between the current price level and the previous high. There are multiple tailwinds that have been developed in recent weeks. These tailwinds, when fully established, could help VGLT recoup the price loss significantly in the coming months. I have a buy rating on VGLT and expect the ETF to accomplish a great total return in the rest of 2024. VGLT ETF Highlight VGLT is a fixed income ETF managed by Vanguard. The ETF is focused on long duration US treasury bonds. As shown by the following map provided by Vanguard, VGLT falls into the long duration and top quality categories in the Fixed Income map. VGLT Fixed Income Category - from Vanguard The number of bond holdings is 84. The following shows the top 10 holdings. VGLT Top 10 holdings - from Morningstar.com The bond grade is at the top AAA, rated on 99.8% of the holdings with 99.84% allocated to Government sector, as shown below. VGLT Sectors and Credit Grades - from Monrningstar.com The following summarizes the ETF market characteristics, with brief comments comparing it to TLT, which is the largest ETF of the same type.  Total Bonds: 84. TLT has 47 total holdings. Credit (A or higher): 99.83% AAA. Yield (FWD): 3.68%. Total Assets (AUM): $17.46B. This is the second largest. TLT AUM is $60.01B. Volume (last day): 3,399,439. Expense Ratio: 0.04%. It is a super low expense ratio compared to TLT's 0.15%. Risk Score(Morningstar): 50. It is considered aggressive but less than TLT's 56.  Warren Buffett does not dump his long-term conviction and market MVP for no reason. What we just learned is that Berkshire Hathaway's \"cash hits record $276.94B\" and that Warren Buffett has been dumping his leading equity holdings Apple (reported $76 billion) and Bank of America (reported $2.3 billion). But we may not know where Buffett is parking the cash today and, more importantly, what his strategy is to manage the huge cash pile in the future. It was reported that he invested in short-term government debt back in 2023 for a high interest of above 5% yield. What will happen to the holdings of the short-term bonds if the inverted yield is reverted? It is quite possible that Buffett is looking for the next generational, long plays in the equity market, like he has usually done in the past. But I don't see a better equity than AAPL as the current MVP in the market, with its market cap of $3.4T. Keep in mind that we have not seen the large deals from Buffett for a few years with his high cash pile. His holdings of (short-term) Treasury bills become more noticeable these days. Where to invest the cash pile? My investment strategy is an interesting one based on two telnets, 1) an overall conservative portfolio structure with a \"50-50\" allocation, following the legendary John Bogle's favorite approach and 2) aggressive and swift equity positions, including deploying options and ultra leveraged ETFs. There is another 50-50 split between long convictions (typically a handful) and short-term plays. About two months ago, I started to raise my bond portion to the current 60%. It was more of a profiting-taking approach and preparation for sector rotations. However, the recent macro conditions have been rapidly changing, so I plan to continue increasing my bond holdings to 70% with more long-duration alternatives until perhaps after the US election. The following illustrates my selection process with the long-term treasury ETFs:  The base list is SA's Long Government ETFs, with a current total of 21 ETFs. Select AUM that is over $1B because I prefer large size ETFs. This step will give me the 8 ETFs shown below. The next three criteria are: (1) good dividends, (2) best price momentums, and (3) the lowest expense. This selection step narrows the list down to the final two: VGLT and SPTL. The final choice is VGLT, as it offers a 3.68%, which has a slight edge over SPTL's 3.51%.  Long Government ETFs Comparison - from SA Notice that TLT is the largest ETF with total assets over $60B, while TLTW has the best dividend distribution (yield over 15%) in this group. They both are good plays depending on investing preference and strategy. Interested readers can check out my recent article on TLTW for more details. Promising rate cut in September is propelling a price break out for the long treasury ETFs There is growing concern about a potential hard landing given the slowing economy data, shown by unemployment, which is \"ticking up to 4.3%\". The top graded treasury bonds are known to be anti-inflationary in nature. The following chart shows the price behavior for the last 5 years, including during the initial stages of the COVID-19 pandemic in 2020. It can be seen that the long treasury bond was going up during the fallout of the equity market in March 2020. This move was largely triggered by the FED rate cut, dropping the interest rate to zero. VGLT Price Analysis -from Author using SA Charting Data I expect the rate cut this September will create a similar catalyst for VGLT to go up in price. Risks & Caveats The biggest risk to investing in long government bonds is the huge government debt, which is topping $35 trillion nowadays. The recent rolling to short term to keep the long steady will surely be short-lived. The concerns could go bigger soon. This would be very negative for the long government bonds. The most recent known downgrade came from Moody's in November 2023, according to this Credit Rating. We could see another downgrade, depending on what the government will be doing with its huge debt. This is one of the key reasons why VGLT could have a very volatile stock price. As shown below, one day's reading of 31.4 on Volatility is considered very high.   VGLT Volatility information from marketchameleon.com Volatility is a measure of risk. Investors should be aware of the potential price drop that could be very substantial when favorable conditions (such as cooling inflations) are not in place. Conclusion  The recent selloff in the equity market may cause the money to start flowing into the long duration fixed income category. The rate-cut in September is almost certain given the recent weak economy data. The cut itself could start the rate declining cycle, which will make the long duration treasury a big winner. Given that the long bond is also an anti-recessionary and defensive asset class, a quality ETF like VGLT represents a great candidate for a long core holding in one's investment portfolio. It is also an attractive buy for a possible remarkable total return in the several months to come, as the macro conditions could turn increasingly more favorable.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"1","news_tag":"Economic Data","news_rank":0,"symbols":[],"gpt_button":0},"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":"4.29.3","shortVersion":"4.29.3","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/2457706922"}