Gross and Fuss Eat Vanguard's Dust
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Friday, November 25, 2011

Gross and Fuss Eat Vanguard's Dust

The Wall Street Journal has some bad news for Pimco [see profile] and Loomis Sayles [see profile]. Last week Min Zeng reported that the $13.4-billion Vanguard Intermediate-Term Bond Index Fund (VBIIX) [see profile] is beating all 177 other intermediate bond funds tracked by Lipper. The index fund's 9.77 percent year-to-date performance leaves Bill Gross' $244.3-billion Pimco Total Return Fund (PTTRX, with 2.91 percent) and Dan Fuss' $19.8-billion Loomis Sayles Bond Fund (LSBDX, with 3.79 percent) in the dust.

Yet, the WSJ notes that both the Loomis and Pimco funds benchmark against a different index: the Barclays Capital U.S. Aggregate Bond Index. That index returned 6.95 percent year-to-date, also beating both star PMs, while the Vanguard fund tracks the Barclays Capital U.S. 5-10 Year Government/Credit Float Adjusted Index.

And over the long run, Fuss and Gross still beat out the Vanguard fund: over the past 15 years, the Loomis Sayles fund returned 8.5 percent, the Pimco fund returned 7.15 percent and the Vanguard fund returned 6.85 percent.

A low expense ratio of 22 basis points, versus 46 bps for Pimco Total Return and 64 bps for Loomis Sayles Bond, helped the index fund beat the field this year. Asset allocation also helped. Vanguard Intermediate-Term Bond Index allocates 52 percent of its assets to Treasuries currently, compared to 19 percent for Pimco Total Return. Treasuries have returned 8.87 percent year-to-date.

Joshua Barrickman, who PMs Vanguard Intermediate-Term Bond Index, also credited the fund's success to its longer average duration, 6.2 years, compared to 4.4 for the Pimco fund and 5.67 for the Loomis Sayles one.

Morningstar research vice president John Rekenthaler and Lipper senior research analyst Jeff Tjornehoj both weighed in for the article.

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