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Rekenthaler Report

To Index Bonds or Not?

Three considerations: income, total return, and diversification.


In a Slump
Friday’s column noted that, for the first time ever,  Vanguard Total Bond Market Index  (VBMFX) lags its actively managed rivals over the long term. From its 1986 inception, the fund had always beaten the trailing 10-year average return for intermediate-term bond funds. Until this summer, that is. In June, the index fund slipped below the norm. Since then, its 10-year Morningstar Category ranking has plummeted, such that the fund now ranks in the bottom quintile (!).

(Although that sounds as if catastrophe has struck the fund, it actually is on something of a hot streak, outgaining the category average over the past three months. The source of the fund’s decline in relative performance lies at the beginning of the measurement period; its excellent late-2008 results are now rolling off the 10-year calculation.)

John Rekenthaler does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.