Gyroscopic Investing

I have been using BTTRX instead of TLT and have obtained better returns at least for the time being. However, I do not see much discussion of BTTRX. Do people have strong opinions about one versus the other. Also what are the dynamics of Zero coupons such as BTTRX or BTTTX  versus LT Bonds in terms of volatility and interest rates. Incidentally Decision Moose uses BTTRX as a proxy for their LT Bond asset class.
Thanks

Zero coupon bonds are around 1.5 times more volatile than coupon bonds (which is what TLT holds).

I don't know much about BTTRX.  Maybe someone else will share their experiences.

MediumTex wrote: Maybe someone else will share their experiences.

I am aware of it, but do not understand exactly how it works. 

Here is what I don't understand. 

The fund is managed to mature in the year 2025 and will be liquidated near the end of its target maturity year.

(from google finance).

It appears to have outperformed EDV and TLT handily over the past 2, 3, and 4 years, but did not do as well as EDV last year.  Also appears to have been less volatile than EDV (closer to TLT) weird. 

Curious to hear what others think.

BTTRX is closer to EDV than TLT

steve wrote: BTTRX is closer to EDV than TLT

But the duration is only 13 years for BTTRX vs. around 25 for EDV.

I haven't looked into it but the impression I got was that it is gradually transmuting from being a LTT zero into being a STT zero. It doesn't keep selling 20years and buying 30years in the way that EDV does. Instead the duration is shortening year by year. That also means that unlike EDV, it doesn't produce "income" (zeros grow in value with time so selling a 30year and buying a 20year leaves EDV with extra left over cash that it distributes). I guess you would have to compare BTTRX against EDV with all the coupons reinvested. Does BTTRX then still come out better? If I understand what it is correctly, then I wonder what is the point of holding BTTRX rather than a single zero bond directly? Is it more liquid or sold in smaller increments or something?

Is there some merit in  keeping each PP asset without its income reinvested? Lets say you have 16% stocks and 34% LTT, wouldn't it make more sense to put all of the income into new stocks rather than new LTT?

stone wrote: I haven't looked into it but the impression I got was that it is gradually transmuting from being a LTT zero into being a STT zero.

So, you're saying that it's basically just a bunch of zeroes that expire in 2025, right?  That would make sense

Is there some merit in  keeping each PP asset without its income reinvested? Lets say you have 16% stocks and 34% LTT, wouldn't it make more sense to put all of the income into new stocks rather than new LTT?

I prefer to put all interest and dividend payments into cash, and then rebalance whenever a band is reached.  But yes, it would definitely make more sense to buy the lagging asset in the case you describe, although it probably doesn't matter that much.

stone wrote: I guess you would have to compare BTTRX against EDV with all the coupons reinvested. Does BTTRX then still come out better?

I used Google Finance to chart them.  I'm pretty sure that it includes reinvested coupons, but I could be wrong.

AdamA wrote: I used Google Finance to chart them.  I'm pretty sure that it includes reinvested coupons, but I could be wrong.

What coupons?

These are all zeroes, right?

I thought that EDV was distributing on a quarterly basis the notional value of the coupon payments that were accumulating in the value of the bonds held by the fund, but that no actual dividends were being generated by the bonds themselves.

MediumTex wrote:

AdamA wrote: I used Google Finance to chart them.  I'm pretty sure that it includes reinvested coupons, but I could be wrong.

What coupons?

These are all zeroes, right?

I thought that EDV was distributing on a quarterly basis the notional value of the coupon payments that were accumulating in the value of the bonds held by the fund, but that no actual dividends were being generated by the bonds themselves.

You are absolutely right.  I believe google finance includes these (the distributions) in their chart, but i am not sure.

That's the question I was trying to ask.

Medium Tex, you are quite right that EDV does not get coupons as such (sorry for using that term) BUT as you say, it does get a cash stream because it sells zeros at 20years lets say and replaces them with new 30year zeros. The zeros increase in value as they get closer to maturity so that rolling over creates a cash stream from the price difference. BTTRX does not roll over and so doesn't get that cash stream. I think we are all meaning the same thing but I just screwed up in my terminology.

Imagine EDV buys a 30year zero for $1, after 10 years it becomes a 20year zero worth $1.30. They sell it and buy a new 30year zero for $1 and distribute the 30c "income". I think that is how EDV works

I think some people posting on here have said that they bought 30year zeros in the early 1980s and  held them to maturity. If they were STRIPS of 10% coupon bonds then after 30years, am I right in thinking that the final payout at maturity would be $4 from an initial $1 purchase?

I just highlighted the EDV distribution issue to show that one advantage that EDV could have over holding individual zeroes is that EDV pays out the money that you are being taxed on, which might make it easier to pay the taxes on the accumulated increases in value of the zeroes.