iShares GOVT as bond holding

Discussion of the Bond portion of the Permanent Portfolio

Moderator: Global Moderator

Post Reply
whatchamacallit
Executive Member
Executive Member
Posts: 750
Joined: Mon Oct 01, 2012 7:32 pm

iShares GOVT as bond holding

Post by whatchamacallit » Sat Apr 15, 2023 9:35 pm

https://www.ishares.com/us/products/239 ... y-bond-etf#/

I have been intrigued by this particular ETF for a while now. I don't see much else like it. Its duration would indicate it is an intermediate treasury bond fund but under the hood it is more than that.

From what I can tell, it holds bonds based on their market cap from 1 year to 30 years.

I feel like this would prevent you from getting over your skis in the long maturities if it is being artificially limited. I also believe it gets you the most coupon income if the rates are higher where maturities have more issues.

Most of the maturities are currently under 7 years with only 15% of the maturities being 20+ years.
Screenshot 2023-04-15 10.22.09 PM.png
Screenshot 2023-04-15 10.22.09 PM.png (69.97 KiB) Viewed 1326 times
I found FUTBX Fidelity® SAI U.S. Treasury Bond Index Fund that appears similar but it required Fidelity wealth services so it would be a lot more expensive with that.

Here is some more information from the underlying index GOVT uses:
https://www.theice.com/publicdocs/data/ ... s_Core.pdf
The Index is market value weighted, and is designed to include U.S. dollar
denominated, fixed rate securities with minimum term to maturity greater than one year and less
than or equal to thirty years.
It also appears to exclude bonds held by the federal reserve from the market cap so you would somewhat avoid their manipulation which I believe some have been concerned with here.
U.S. Treasuries included in the Federal Reserve System Open Market Account
(SOMA) will be deducted from the bond amount outstanding.
I am thinking of doing a 3x33 portfolio using this fund, total stock fund and a gold fund in IRAs. I thought it also might be helpful for people currently skeptical of the long term treasury bonds if you used it in 4x25.

It is a little eye opening to see how little market cap the long term treasuries make up. It does make me feel like the interest rates are a little bit suppressed on the long end currently.

What I would like to find if anyone knows of one, is a chart that shows the market cap of each bond maturity outstanding to see how it compares to this fund.
whatchamacallit
Executive Member
Executive Member
Posts: 750
Joined: Mon Oct 01, 2012 7:32 pm

Re: iShares GOVT as bond holding

Post by whatchamacallit » Sat Apr 15, 2023 9:44 pm

A little more hunting I did find a couple of other funds that use a similar methodology but not as cheap or as big as GOVT

Franklin U.S. Treasury Bond ETF
https://www.franklintempleton.com/inves ... d-etf/FLGV

NORTHERN FUNDS
U.S. TREASURY INDEX FUND
https://www.northerntrust.com/united-st ... come/BTIAX
whatchamacallit
Executive Member
Executive Member
Posts: 750
Joined: Mon Oct 01, 2012 7:32 pm

Re: iShares GOVT as bond holding

Post by whatchamacallit » Wed Apr 26, 2023 2:51 pm

I sold my long term treasury funds today and plan to buy GOVT to replace them as soon as the cash is settled.

I decided to stick with 4 x 25 but use GOVT instead of long term treasury funds.

I also found statistics for the value of all outstanding marketable treasuries broken down by notes, bills and bonds. Best I can tell, notes have more than bills and bonds combined. This does seem to match up with distribution of maturities in GOVT.

https://www.statista.com/statistics/127 ... -type-usa/
Screenshot 2023-04-26 3.30.12 PM.png
Screenshot 2023-04-26 3.30.12 PM.png (76.25 KiB) Viewed 1237 times
User avatar
seajay
Executive Member
Executive Member
Posts: 430
Joined: Mon Aug 09, 2021 11:11 am

Re: iShares GOVT as bond holding

Post by seajay » Thu Apr 27, 2023 8:16 am

PV data for 37.5/37.5/25 TSM/T-Bill/Gold compared to the PP i.e. shift bond risk over to the stock side (split LTT 50/50 between TSM/T-Bills), pre 2022 did have the PP as 'better' in the sense of lower/better worst year, but with the addition of 2022 data that difference has aligned

Image
Jan 1978 to March 2023 data

Image
whatchamacallit
Executive Member
Executive Member
Posts: 750
Joined: Mon Oct 01, 2012 7:32 pm

Re: iShares GOVT as bond holding

Post by whatchamacallit » Thu Apr 27, 2023 5:45 pm

It is nice that you can get good results without using bonds at all. I was doing something close to that back when rates were so low I couldn't bring myself to buy the bonds. I figure you might as well just do 40 , 40 , 20 to make it symmetrical like the golden butterfly of course.

Check out how low the drawdown and standard deviation go when you use intermediate bonds in place of long bonds in the permanent portfolio.

GOVT isn't exactly an intermediate bond fund as I found above but it is close enough. I think another way to think of GOVT is that it is similar to a total bond fund but only using treasuries. Best I can tell, a total bond fund would buy all the marketable bonds based on market cap just like GOVT does with treasuries.

If the long duration bonds are currently making up a small portion of the market, you won't hold much in GOVT. If they ever do start making up a larger portion then you will hold more but will be rewarded with higher coupons that a higher volume of issues would cause.


Screenshot 2023-04-27 6.18.46 PM.png
Screenshot 2023-04-27 6.18.46 PM.png (196.28 KiB) Viewed 1174 times
User avatar
Hal
Executive Member
Executive Member
Posts: 1349
Joined: Tue May 03, 2011 1:50 am

Re: iShares GOVT as bond holding

Post by Hal » Thu Apr 27, 2023 9:04 pm

Just playing around with backtests. BelangP's model doesn't look too bad. You would have to model it with a high dividend ETF that went through a period where Bonds performed well though...
Attachments
Screen Shot 2023-04-28 at 11.58.03 am.png
Screen Shot 2023-04-28 at 11.58.03 am.png (102.08 KiB) Viewed 1157 times
Screen Shot 2023-04-28 at 11.57.15 am.png
Screen Shot 2023-04-28 at 11.57.15 am.png (36.63 KiB) Viewed 1157 times
Screen Shot 2023-04-28 at 11.56.12 am.png
Screen Shot 2023-04-28 at 11.56.12 am.png (87.81 KiB) Viewed 1157 times
Aussie GoldSmithPP - 25% PMGOLD, 75% VDCO
D1984
Executive Member
Executive Member
Posts: 730
Joined: Tue Aug 16, 2011 7:23 pm

Re: iShares GOVT as bond holding

Post by D1984 » Fri Apr 28, 2023 4:21 am

Hal wrote:
Thu Apr 27, 2023 9:04 pm
Just playing around with backtests. BelangP's model doesn't look too bad. You would have to model it with a high dividend ETF that went through a period where bonds performed well though...
How far back would that need to be? DVY goes back to 2003; FDL (extended by using its underlying index back past its actual inception) goes back to late 1997; the MSCI USA High Dividend Index underlying VYM goes back to 11-30-1975; and the Ken French data library data sets sorted into quintiles (and into deciles) by dividend yield go back to 12-31-1927.

On second thought, is there a particular reason why BelangP uses a high dividend index fund instead of a quality dividend growth index fund like the Dividend Aristocrats ETF (ticker symbol NOBL; this one only goes back to late 2013 but the underlying index goes back to 12-31-1989.....and I have a reasonable simulation of it back to the early 1950s for the period before that)? Over the long term dividend growth stocks had a higher Sharpe ratio and Sortino ratio (and lower maxDD) than stocks that merely had high dividend yields.
User avatar
Hal
Executive Member
Executive Member
Posts: 1349
Joined: Tue May 03, 2011 1:50 am

Re: iShares GOVT as bond holding

Post by Hal » Fri Apr 28, 2023 7:04 am

D1984 wrote:
Fri Apr 28, 2023 4:21 am

On second thought, is there a particular reason why BelangP uses a high dividend index fund
Paul explained his reasoning in one of these podcasts
https://www.fundyourretirement.com/?s=Paul+Belanger

Unfortunately they changed the website layout, so I don't have a link to the particular talk anymore...
With regards to specific ETF's, since I don't live in the USA, I wasn't paying much attention. One thing I did discover however, is that if you hold an offshore ETF, (at least what is offered in Australia) the dividend is very variable since the fund is unhedged.

Edit: He uses VHYAX
Aussie GoldSmithPP - 25% PMGOLD, 75% VDCO
Post Reply