ir682@sdcc6.UUCP (Gerald Steinberg) (02/19/86)
Can anyone explain why different GinnieMae funds pay different rates. Also, what are the risks of higher paying funds? (They seem to range from 10% to almost 12%). Is there any systematic way to determine which fund is currently paying the highest rate?
ekrell@ucla-cs.UUCP (02/22/86)
The different yields can be explained by a number of factors. First, some
funds invest a certain percentage of their assets in U.S. government securities
other than GNMAs (i.e., Treasury Bills, Notes and Bonds). Depending on how
much is invested in those securities, the total yield changes. You can check the
prospectus of a fund to find out.
Some funds (such as the YES fund and others) sell call options against their
holdings in an effort to fatten yields. Sometimes the strategy works but if
interest rates fall and bond prices rise, the fund gives up valuable capital
gains. Again, read the prospectus carefully. These funds are also known as
Yield-Enhanced or Yield-Plus funds.
Money Magazine lists the top five last month performers (with their
one and five year performance) for 7 different bond funds categories.
The march 86 issue lists:
U.S. Government Bonds
Jan 86 1 year 5 years load
1 Fund for U.S. Government Securities 12.8% 15.3% 103.0% none
2 Lexington GNMA Income 12.4 15.9 83.8 none
3 Dean Witter U.S. Government 11.7 13.3 - none
4 Franklin U.S. Government 11.5 13.0 94.8 4.0%
5 Alliance Mortgage Securities 11.5 11.4 - 5.5
Yield-Enhanced Bond Funds
Jan 86 1 year 5 years load
1 YES Fund 13.1% 0.6% - 3.75%
2 Paine Webber GNMA 11.8 13.1 - 4.25
3 Van Kampen Merrit U.S. Government 11.5 14.5 - 4.75
4 Kemper Invest. - Port. Gov. Plus 10.7 10.3 - none
5 American Capital Gov. Sec. 9.1 7.7 - 6.75
--
Eduardo Krell UCLA Computer Science Department
ekrell@ucla-locus.arpa ..!{sdcrdcf,ihnp4,trwspp,ucbvax}!ucla-cs!ekrelltg@sfmin.UUCP (T.Glinos) (02/23/86)
> The different yields can be explained by a number of factors. First, some > funds invest a certain percentage of their assets in U.S. government securities > other than GNMAs (i.e., Treasury Bills, Notes and Bonds). Depending on how > much is invested in those securities, the total yield changes. You can check the > prospectus of a fund to find out. Are there any general disadvantages to buying GNMA's? Are there any penaltys involved in selling your shares after a year?
mazlack@ernie.berkeley.edu.BERKELEY.EDU (Lawrence J. &) (02/24/86)
>Can anyone explain why different GinnieMae funds pay >different rates. Also, what are the risks of higher paying >funds? (They seem to range from 10% to almost 12%). Is >there any systematic way to determine which fund is >currently paying the highest rate? The easiest way to find out what their rates are to call their 800 number. There aren't so many that this is a big chore. Another way is to look it up in Barron's. For example, the last divident for Vanguards GNMA fund was: .085. The price of a share was: 10.07. Thus the dividend on an annualized basis is : 10.1%. But, this isn't really such a good number, if you call them, you usually can get: (a) current rate, annualized, (b) average rate over last week, (c) average rate over last month, and (d) average rate over last year. Make sure that you are comparing apples to apples when you compare rates between competitors. The rate will vary somewhat because some companies own paper with longer maturities than others. But, comprable investments should have approximately the same return. The thing to look out for are charges. (I manage several "pools" and read these things pretty carefully.) You should ONLY buy no-load GNMA funds. There is no need to pay either a front or back end load for this type of fund. If you do, you are throwing your money away. The other thing to look out for is management charges. Some no-load funds charge a hefty 1.5% annual management charge, while others charge 0.015.
mazlack@ernie.berkeley.edu.BERKELEY.EDU (Lawrence J. &) (02/24/86)
>Are there any general disadvantages to buying GNMA's? GNMAs and GNMA funds sell at a premium interest rate because their interest rate return is not secure. I.e., you are not guaranteed the rate of return as the debt tends to be repaid when interest rates fall. >Are there any penaltys involved in selling your shares >after a year? Depends on the fund. True no-loads can be cashed in at anytime with no charges. Read the prospectus wherein all is made known. ...Larry Mazlack
alan@mtxinu.UUCP (Alan Tobey) (02/24/86)
> Can anyone explain why different GinnieMae funds pay > different rates. Also, what are the risks of higher paying > funds? (They seem to range from 10% to almost 12%). Is > there any systematic way to determine which fund is > currently paying the highest rate? GNMA funds invest in pools of government-guaranteed mortgages, whereas money-market funds are based on short-term commercial debt. The difference in yields reflects the market: you pay more for your mortgage than big banks do foor short-term funds. The risk compared to money-market funds is that the per-share price of the fund varies, not just the day-to-day yield. The extra few percent in annual yield could (theoretically) be wiped out if the per-share price declined. This is most likely to happen if mortage interest rates INCREASE, decreasing the relative value of the mortgage pools the fund holds at the time of increase. Conversely, if rates decline the value of the fund should increase. In practice, the value of the fund shares are fairly stable, and don't (for example) follow stock prices in general. Over the last few months of booming stock prices, most gnma funds have varied within a 2-3% range. A good way to hedge your bet is to establish both a money-market fund and a gnma fund with a company that allows telephone transfer. MONEY magazine periodically publishes comparisons of these funds.
ekrell@ucla-cs.UUCP (02/25/86)
In article <11998@ucbvax.BERKELEY.EDU> Lawrence J. Mazlack writes: >For example, the last divident for Vanguards >GNMA fund was: .085. The price of a share was: 10.07. Thus the dividend >on an annualized basis is : 10.1%. .085 was their december dividend. They paid .105 on january. Their yield as of today (2/24) is 10.31%. The price per share today was 10.09 -- Eduardo Krell UCLA Computer Science Department ekrell@ucla-locus.arpa ..!{sdcrdcf,ihnp4,trwspp,ucbvax}!ucla-cs!ekrell
ekrell@ucla-cs.UUCP (02/25/86)
In article <660@sfmin.UUCP> tg@sfmin.UUCP (T.Glinos) writes: > >Are there any general disadvantages to buying GNMA's? >Are there any penaltys involved in selling your shares >after a year? There is a risk involved with GNMAs as well as all other forms of bonds (corporate, municipal, etc). The price of the bonds fluctuate with interest rates. When interest rate go up, prices go down and viceversa. Therefore, it is not intended to be a short term investement. (People think GNMAs are an alternative to bank CDs, especially when they hear that they are guaranteed by the US Government. If you can't afford any risks in your principal then GNMAs are not for you.) The fluctuation in the price of the bond depends heavily on its quality and term (long term bonds and poor quality bonds are more volatile than short term bonds and good quality ones). GNMAs are good quality bonds but are considered mid to long term bonds. For example, the average certificate maturity in Vanguard's GNMA fund is 12.5 years. Some funds have upfront sale charges and some have redemption charges (when you sell your shares). Some don't have either (No-load funds). I would recommend investing in a No-load or Low-load mutual fund familiy so you can switch from a GNMA fund to stock or money market funds (as market conditions fluctuate) without paying penalties and by just calling them on the phone. -- Eduardo Krell UCLA Computer Science Department ekrell@ucla-locus.arpa ..!{sdcrdcf,ihnp4,trwspp,ucbvax}!ucla-cs!ekrell
mazlack@ernie.berkeley.edu.BERKELEY.EDU (Lawrence J. &) (02/26/86)
>>For example, the last divident for Vanguards >>GNMA fund was: .085. The price of a share was: 10.07. Thus the dividend >>on an annualized basis is : 10.1%. > >.085 was their december dividend. They paid .105 on january. Their yield >as of today (2/24) is 10.31%. The price per share today was 10.09 Right you are. I was trying to provide a way of finding out this information. Elsewhere in my posting, I think that it was clear that my prefered method was to call them up. (The .085 number came from the Feb 24, 1986 Barrons.)