Query: If long term interest rates are about the same in June, 1995 as they were in June, 1993, have the largest government bond funds enjoyed a price recovery equal to their decline?
Not hardly.
On average, a $10,000 original investment in one of the funds would have lost just over $1,100 from July, 1993 to the bond market low in November, 1994. The recovery since then, however, has been about half, $500.
The table below, constructed using Ondisc, a software and data product from Morningstar, shows the response of each fund from a $10,000 investment on July 1, 1993 to July 31, 1995.
The Crash and (Almost) Recovery for the 10 Largest Government Securities Funds
| Fund |
7/1/93 |
Bottom |
7/31/95 |
Loss |
Rise |
Net |
| Franklin U.S. Govt |
9575 |
8441 |
8995 |
-1134 |
554 |
-580 |
| Dean Witter U.S. Gvt |
10000 |
8828 |
9451 |
-1172 |
623 |
-549 |
| Vanguard GNMA |
10000 |
9060 |
9649 |
-940 |
589 |
-351 |
| AARP GNMA & Treasury |
10000 |
9037 |
9391 |
-963 |
354 |
-609 |
| Kemper U.S. Gvt. A |
9550 |
8414 |
8987 |
-1136 |
573 |
-563 |
| Putnam U.S. Gvt. A |
9525 |
8400 |
8897 |
-1125 |
497 |
-628 |
| Lord Abbett U.S. Gvt. |
9525 |
8169 |
8453 |
-1356 |
284 |
-1072 |
| Van Kampen U.S. Gvt. A |
9525 |
8090 |
8677 |
-1435 |
587 |
-848 |
| Amer. Cap. Gvt Sec. A |
9525 |
8353 |
8866 |
-1172 |
513 |
-659 |
| Govt. Inc. Sec. |
9900 |
8800 |
9208 |
-1100 |
408 |
-692 |
Source: Morningstar/Ondisc
Just in case staring at tables of numbers is not your cup of tea, here is a list of prizes:
- BEST OVERALL PERFORMANCE. This goes to Vanguard GNMA. The fund has no load, had the smallest decline, and offered the best return, net of losses in principal, for the period. In addition to having $9,649 of your original investment, you would have received $1,330 in interest income.
- LEAST WORRISOME. Another prize for Vanguard GNMA. At the market bottom in November, an original investment of $10,000 had declined to $9060--- a lot more than most people would have liked but not bad for the worst year in bond market history.
- WORST OVERALL PERFORMANCE. This goes to the Lord Abbett U.S. Government fund. Its steep, $1,603 decline on top of a 4.75 percent load meant that an investor would have seen his $10,000 reduced to $8,090 by the market bottom. And in spite of producing the highest interest income, $1,603, its recovery was so weak the net return was the lowest of the ten funds.
- MOST IMPROVED. Dean Witter, a retail brokerage firm that puts intense pressure on its brokers to sell proprietary products, managed to sell its way to over $12 billion in its U.S. Government fund by 1992 in spite of a dismal record. The fund, however, produced the second lowest net loss of principal for the period and, after six years of being in the bottom 50 percent of its category, has been in the top 25 percent this year.
Further research showed that the losses weren't over the three years ending in June, all ten funds lost principal OVER AND ABOVE any sales commissions paid. The best fund was Vanguard GNMA, which lost only $31 on a $10,000 investment. The worst was Putnam U.S. Government Income A shares which lost $829 in addition to the $475 sales commission. Dean Witter U.S. Government Securities fund was the worst performing fund for both the five and ten year periods, losing $973 in principal for 5 years and $1,310 for 10 years.
This article contains the opinions of the author but not necessarily the opinions of AssetBuilder Inc. The opinion of the author is subject to change without notice. All materials presented are compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. This article is distributed for educational puposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, product, or service.
Performance data shown represents past performance. Past performance is no guarantee of future results and current performance may be higher or lower than the performance shown.
AssetBuilder Inc. is an investment advisor registered with the Securities and Exchange Commission. Consider the investment objectives, risks, and expenses carefully before investing.
