Low-Cost Funds: How to Succeed in the Bond Market Without Really Trying
Here's one prediction you can take to the bank: In 2006, low-cost bond and money-market funds will once again whip their competitors.
This isn't exactly a bold forecast. The lowest-cost funds in each category win with such regularity that it is hard to fathom why investors would own anything else.
And yet they do. According to Chicago investment researcher Morningstar Inc., $166 billion languishes in taxable-bond funds with annual expenses above 1%. That's roughly a fifth of all the money invested in these funds. Make no mistake: These investors are almost certainly destined for mediocrity.
? Paying the price. Among stock-fund investors, there is heated debate over whether historical results are at all predictive. In fact, fund prospectuses and advertisements regularly warn that "past performance is no guarantee of future results," or words to that effect.
By contrast, historical bond-fund and money-market-fund performance really does mean something, and winners do indeed repeat. But it isn't because some bond and money-market-fund managers are smarter than others.
Rather, it's all about costs. If a bond fund or money-market fund has low annual expenses, that is an enduring advantage that all but guarantees better-than-average investment results.
For proof, consider some numbers from Morningstar. The firm analyzed funds in seven categories: emerging-market debt, world bonds, high-yield "junk" bonds, government-mortgage securities, intermediate-term government bonds, high-quality short-term debt and taxable money-market securities.
Morningstar took the funds in each category and, based on their latest net annual expenses, divvied them up into three equal-size groups: low-cost, middle-cost and high-cost. It then calculated the average performance for each group over one, three and five years through year-end 2005.
For six of the seven categories, the results were entirely as you would expect. Over the three time periods, the low-cost funds beat the middle-cost funds, which in turn outperformed the high-cost funds.
World-bond funds were the lone exception. The low-cost funds were the best performers in 2005 and over five years. But over three years, they were muscled out of the top spot by the middle-cost funds.
? Cutting your costs. What explains the world-bond-fund results? The category includes a hodgepodge of funds. Some invest entirely abroad and never hedge currencies. Others keep substantial assets in U.S. bonds and regularly hedge their foreign-exchange exposure.
Result? Differences in investment strategy can -- at least in the short run -- prove more important than differences in annual expenses. Similarly, managers of junk-bond funds and emerging-market-debt funds also have a fair amount of room for maneuver, so variations in their short-run results won't always be driven by costs.
But for other fixed-income categories, expenses are the key factor. If a fund invests in, say, short-term corporate bonds, tax-free municipals or taxable money-market securities, it is mighty tough for the manager to shine -- and the fund's category ranking will likely reflect its annual expenses.
"It's virtually impossible for a manager in the high-grade U.S. bond market to add more than 0.25% in annual returns over the long run," says William Reichenstein, an investments professor at Baylor University in Waco, Texas. "If you're talking about a fund with 1% expenses versus another with 0.25%, there's no way that the high-cost fund can overcome the expense burden and compete with the low-cost fund."
Costs are especially important in today's low-yield market. For instance, over the past 12 months, investors in the highest-cost government-mortgage funds paid average expenses of 1.6%, leaving them with a yield of 3.2%. In other words, these shareholders lost a third of their potential income to fund expenses.
To be sure, a high-cost fund won't necessarily have a low yield. But if anything, that is even more worrying. The reason: The manager may be dabbling in dodgier securities in an effort to boost yield -- and the risks involved could come back to haunt shareholders.
Fortunately, investors seem to be waking up to the importance of costs. According to the Investment Company Institute in Washington, bond funds had a net cash outflow of $11 billion in 2004. But the 10% of bond funds with the lowest expenses actually gained assets, hauling in $10 billion during the year.
What if you are among the folks with $166 billion in high-cost taxable-bond funds? If you want to slash your fund expenses, consider the low-cost offerings from TIAA-CREF and Vanguard Group, where you can find bond funds that charge just 0.2% or 0.3% a year.
You can also find lower-cost bond funds, including some with annual expenses below 0.5%, at fund companies such as AMF Funds, Fidelity Investments, Payden Funds, T. Rowe Price Group and USAA Investment Management.
You may have to pay a little more for funds that invest in emerging-market debt and developed-foreign-market bonds. But even in these categories, there are some decent offerings with expenses below 1%. You can find a sampling of such funds in the accompanying chart.
如何在债券市场稳赚不赔
关于金融投资，这里有一个预测：2006年，低成本债券和货币市场基金将再次击败其他竞争对手。
确切来说这不是一个大胆的预测。所有类别的低成本基金都能提供稳定的回报，因此很难想像投资者为什么会选择其他种类的基金。
然而，投资者的确会选择其他种类的基金。根据芝加哥投资研究公司晨星公司(Morningstar Inc.)的统计，在年费率超过1%的应税债券基金上，有1,660亿美元的投资收益惨淡，这大约相当于此类基金投资总额的五分之一。没错：这些投资者几乎肯定要面对平淡的投资收益。
--付出代价。关于历史结果是否有预见意义这个问题，股票基金投资者们争论得很激烈。事实上，基金招募说明书和广告经常会提醒说“过去的表现不能保证未来的结果”或其他类似的声明。然而，债券基金和货币市场基金的历史表现确实能说明一些问题，赢家们确实一赢再赢。但这不是因为某些债券和货币市场基金经理比别的基金经理更聪明。
问题都在于成本。如果说债券基金或货币市场基金年费用低，那这一持久的优势几乎能保证它的回报要高于平均投资结果。
作为证明，让我们来看看来自晨星公司的几个数字。这家公司分析了7种类型的基金：新兴市场债券、国际债券、高回报的“垃圾”债券、政府抵押证券、中期政府债券、高质量的短期债务和应税货币市场证券。
晨星公司从每个种类里抽取一些基金，根据它们最近的净年费水平分成规模相等的三组：低成本、中等成本和高成本。然后计算每一组截至2005年底的1年期、3年期和5年期的平均表现。
7个类别中有6个的结果完全与你可能的期待值相吻合。在计算的三个时间段内，低成本基金胜过中成本基金，而中成本基金优于高成本基金。
唯一一个例外是国际债券基金。在1年和5年期的比较中，低成本基金依然表现最好，但其3年期表现不及中成本基金。
--降低成本。什么原因能解释国际债券基金的投资结果呢？这个类别的基金五花八门，有的全部投资在海外、从来不对冲外汇风险，有的则持有大量的美国债券资产，定期对冲外汇风险。
结果怎样？投资策略上的差别被证明比年费上的差别要重要得多，至少在短期内如此。与此相似，垃圾债券基金和新兴市场债务基金的经理也有较多的控制余地，因此它们在短期投资结果上的变化不总是由成本造成的。
但对于其他固定收入类的基金，费用是关键的因素。比如，如果一项基金投资短期公司债券、免税市政债券或应税货币市场证券，经理们想出类拔萃相当困难，各类基金的收益差异很可能就体现出了其年费的高低。
“美国高等级债券市场上的经理在长期内要增加0.25%以上的年回报率几乎是不可能的，” 位于德克萨斯州韦科市贝勒大学(Baylor University)的威廉?赖肯斯坦教授(William Reichenstein)说。“如果你在比较一个年费率为1%的基金和另一个年费率为0.25%的基金，高成本的基金无法克服费用上的负担，无法与低成本基金竞争。”
在今天回报率低的市场情况下，成本显得尤其重要。比如，在过去的12个月，高成本政府抵押基金的投资者支付的平均费率是1.6%，回报率是3.2%。换句话说，这些股东的潜在受益有三分之一牺牲在了基金费用上。
诚然，高成本基金回报率不一定低。如果要说有什么不妥之处的话，高成本基金更令人担忧。理由是：基金经理为了提高回报可能会涉足一些高风险的证券，这些风险反过来会影响到股东的利益。
幸好，投资者正在意识到成本的重要性。根据华盛顿的投资公司机构(Investment Company Institute)的研究，债券基金2004年的资金流出净额为110亿美元。但对于占债券基金总量10%的那部分费用最低的债券基金，其资产却有所增加，当年就吸引来了100亿美元的资金。
如果你是1,660亿美元高成本应税债券基金投资者中的一员，你会怎样？如果你想降低基金的费用，那么不妨考虑TIAA-CREF和Vanguard Group提供的低成本债券，他们提供的债券基金有的每年只收0.2%或0.3%的费用。
你还能在AMF Funds、Fidelity Investments、Payden Funds、 T. Rowe Price Group、USAA Investment Management等基金公司找到低成本债券基金，包括一些年费在0.5%以下的基金。
投资于新兴市场债券和发达外国市场债券的基金费用可能要高一点，但在这两类基金中，也有一些费率在1%以下的基金。
