|Expense Ratio (net)||0.71%|
|Category||Intermediate Core-Plus Bond|
|Last Cap Gain||0.00|
|Morningstar Risk Rating||Above Average|
|Beta (5Y Monthly)||0.90|
|5y Average Return||N/A|
|Average for Category||N/A|
|Inception Date||May 10, 1987|
The Pimco RAFI ESG U.S. Exchange Traded Fund will track the Research Affiliates RAFI ESG U.S. Index, which seeks to outperform indexes weighted by market capitalization while emphasizing companies that adhere to ESG principles.
It's no secret that actively run mutual funds are unpopular. Meanwhile, the combination of index mutual funds and exchange-traded funds has enjoyed positive net sales. The universe consists of all mutual funds and ETFs, save for money market funds and funds of funds.
That Vanguard might eventually become the largest fund company is not startling. Thirty years ago, when Vanguard wasn't among the 10 largest mutual fund sponsors, it had nonetheless established the industry's strongest brand. The first of this article's three charts compares Vanguard's annual net sales (including exchange-traded funds, but excluding funds-of-funds so as not to double-count transactions) against those of all its rivals combined.
In essence, the Morningstar Medalist rating is about competitive advantages. If we think a fund has enough competitive advantages to outperform its peers, we give it a Morningstar Analyst Rating of Bronze. If it has enough advantages to have a good chance to outperform its benchmark, too, we rate it Silver or Gold.
Tim Harford, a Financial Times columnist, wondered "Why Brilliant People Lose Their Touch." He maintains, at least for mutual funds, that the question cannot be answered. Having looted Harford's topic, I will do likewise with his conclusion. The sample size of consistently successful mutual fund managers is too small, and the factors affecting their funds too large, to permit comfortable conclusions.
What contributed to Vanguard 500 Index's VFIAX 6.4% decline that month? Understanding a bond portfolio's performance drivers, on the other hand, is a much trickier undertaking. For starters, there's no widely available resource where you can look up monthly returns for individual bonds, like you can for stocks.
Funds in the intermediate-term bond Morningstar Category are a favorite among investors: According to our latest fund flows report, these funds raked in $15.5 billion in assets last month. Plus, you'll get the diversification benefits that bonds can offer an equity-heavy portfolio. Each fund listed here earns a Morningstar Analyst Rating of Gold.
The fund has greater latitude than Fidelity Total Bond, and it has used that flexibility to dial down credit and interest-rate risk in recent years. Unfortunately for the fund, those risks have generally paid off, even with rates rising more recently.
The linchpin of the Bucket Approach is one to two years' worth of living expenses set aside in cash instruments. By using broad-based index funds, you can easily determine which holdings to peel back on and where to add. Because many retirees have large shares of their portfolios in low-returning investments like cash and bonds, focusing on very low-cost investments is an easy way to enhance take-home returns.
Whereas the previous generation of retirees may have been able to easily generate a livable income with a combination of bond and dividend payments, doing so today is a heavier lift. Pioneered by financial-planning guru Harold Evensky, the Bucket approach is simply a total-return portfolio combined with a cash component to meet near-term living expenses. The long-term portion of the portfolio includes income-producing securities, but its main goal is to maximize long-term total return.
Note: This article is part of Morningstar's 2019 Portfolio Tuneup week. The past few decades have brought huge challenges for retirees and pre-retirees: two market crashes, the ebbing away of pension plans, and dramatically declining interest rates (which are finally starting to head back up). The Bucket approach to retirement planning doesn't solve all of those problems.
Note: This article is part of Morningstar's 2019 Portfolio Tuneup week. A version of this article appeared on Jan. 26, 2018. Safety and quality are the watchwords of my conservative bucket portfolio, geared toward older retirees with a time horizon of 15 years or fewer.