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Do any of the TSP funds hold mortgage backed securities?
- Thread starter titan3d
- Start date
Nimrod1193
Member
No, they don't.
The Lehman Brothers U.S. Aggregate Index consists of high quality fixed-income securities with maturities of more than one year. The index is comprised of Treasury and Agency bonds, asset-backed securities, and corporate and non-corporate bonds. On December 31, 2005, the LBA Index included 6,453 notes and bonds. The average LBA Index coupon rate was 5.2%, which means that, on an annual basis, interest income equalled approximately 5.2% of the face value of the securities in the LBA Index. The average duration (a measure of interest rate risk) of the LBA Index was 4.5 years, which means that a 1% increase (decrease) in interest rates could be expected to result in a 4.5% decrease (increase) in the price of a security. New issues are added continuously to the LBA Index, and older issues drop out as they reach maturity.
Barclays U.S. Debt Index Fund — The F Fund is invested in the Barclays U.S. Debt Index Fund. Because the LBA Index contains such a large number of securities, it is not feasible for the Barclays U.S. Debt Index Fund to invest in each security in the index. Instead, Barclays selects a large representative sample of the various types of mortgage-backed, U.S. Government, corporate, and foreign government securities included in the overall index. Within each sector, Barclays selects securities that, as a whole, are designed to match important index characteristics such as duration, yield, and credit rating. The performance of the U.S. Debt Index Fund is evaluated on the basis of how closely its returns match those of the LBA Index. The F Fund invests in the Barclays U.S. Debt Index Fund by purchasing shares of the Barclays U.S. Debt Index Fund “E,” which in turn holds shares of the Barclays U.S. Debt Index Master Fund. As of December 31, 2005, F Fund holdings constituted $10.2 billion of the U.S. Debt Index Master Fund, which itself held $25.3 billion in securities.
http://www.tsp.gov/rates/fundsheet-ffund.pdf
Barclays U.S. Debt Index Fund — The F Fund is invested in the Barclays U.S. Debt Index Fund. Because the LBA Index contains such a large number of securities, it is not feasible for the Barclays U.S. Debt Index Fund to invest in each security in the index. Instead, Barclays selects a large representative sample of the various types of mortgage-backed, U.S. Government, corporate, and foreign government securities included in the overall index. Within each sector, Barclays selects securities that, as a whole, are designed to match important index characteristics such as duration, yield, and credit rating. The performance of the U.S. Debt Index Fund is evaluated on the basis of how closely its returns match those of the LBA Index. The F Fund invests in the Barclays U.S. Debt Index Fund by purchasing shares of the Barclays U.S. Debt Index Fund “E,” which in turn holds shares of the Barclays U.S. Debt Index Master Fund. As of December 31, 2005, F Fund holdings constituted $10.2 billion of the U.S. Debt Index Master Fund, which itself held $25.3 billion in securities.
http://www.tsp.gov/rates/fundsheet-ffund.pdf
Damn. Any idea what percent of the F fund is invested in these MBS? I have some of my TSP in the F-fund to provide diversification and reduce the risk, but maybe this is not a good idea anymore?
SkyPilot
Well-known member
One must ask themselves, "Is it ever a really good idea to allocate to the F fund?”
While you can make this case from time to time in very specific situations, the F fund is inferior to the G fund as a safe haven, and inferior to the stock funds as a growth tool... risk with little reward potential.
While you can make this case from time to time in very specific situations, the F fund is inferior to the G fund as a safe haven, and inferior to the stock funds as a growth tool... risk with little reward potential.
Griffin
Well-known member
Nimrod1193
Member
Well, it would appear that I was incorrect. Thanks for pointing that out and I apologize to the original poster for my incorrect information.
SkyPilot
Well-known member
Good to be back... was attending to problems in the Antarian Nebula...
Contact Barclays Global Investors
San Francisco
General Inquiries
Phone: 415 597 2000
Fax: 415 597 2696
client.reporting@barclaysglobal.com
San Francisco
General Inquiries
Phone: 415 597 2000
Fax: 415 597 2696
client.reporting@barclaysglobal.com
Bonds reduce portfolio risk. Decades of historical performance prove this.
SkyPilot
Well-known member
Here is some data to consider...
From the TSP website
Historical Returns
10 Year Compounded
G fund 5.49
F fund 6.18
A .69% average return by the F fund over the G fund (average annual) is not substantial enough to warrant the risk IMHO, at least for me. However, the F fund used as a tool in very limited circumstances may have value in particular strategies.
Bonds reduce risk (potentially) of capital losses, but they also pose substantial risk of limiting growth, especially if one is trying to maximize gains.
Given the two funds, I still maintain the F fund in most circumstances provides little advantage over the G fund, but does increase risk.
Good luck!
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In the 1990's, there were years when the F-fund was up 10-15%. The market is cyclical and those days can come again. The G-fund will never return 10% ever.
SkyPilot
Well-known member
Well, good luck with that! 
Should the market tank and provide the environment that would produce those 10-15% returns that you speak of, I will consider an allocation at that time. However, this is not that time. But should that time come again, those conditions will likely benefit the G fund in the same manner.
But let's also review the years it underperformed the G fund, and drastically underperformed the C fund. When you look at the whole story, it really doesn't support your premise very well. The numbers are there for all to see.
It's your money, your retirement and your responsibility. Read and learn.
Should the market tank and provide the environment that would produce those 10-15% returns that you speak of, I will consider an allocation at that time. However, this is not that time. But should that time come again, those conditions will likely benefit the G fund in the same manner.
But let's also review the years it underperformed the G fund, and drastically underperformed the C fund. When you look at the whole story, it really doesn't support your premise very well. The numbers are there for all to see.
It's your money, your retirement and your responsibility. Read and learn.
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SkyPilot
Well-known member
Never say never.
History has a way of repeating itself. Remain flexible and commit to results, not to an opinion.
You are painting yourself in a corner here...
nnuut
Moderator | TSP Legend
Birchtree
Well-known member
The bond market has always givin me the wooleys. I can't stand that dark cloud they sit under. Always thinking and hoping for the worse. Back in the 90s the treasury rate was 7%. I remember when the thirty year was yielding 14% and no one dared go close. Those that did got in at $50 and rode to $105 and the rate dropped to probably 5%. You'll never see that action again. The largest contributor to bond yields is not the economy, but inflation expectations. Currently and into the future there are only minimals inflation pressures. If you find watching your lawn grow comforting, then the F fund is appropriate.
McDuck
Well-known member
So Birch, are you saying that the F-fund would be the place to be when the dollar is devalued because the treasury are printing to many of them?
ATCJeff
Well-known member
I believe we are starting to see risk in the F fund that none of us have seen since 1987. My opinion is the 30yr is due for a sharp increase in yields. Which we know is bad for the F fund. I think you'll see the 30 yr bond rise back into the long term trading channel. I've included a couple of graphs.
View attachment 5196
View attachment 5197
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