Why the sudden distaste? It’s not just rising interest rates. New York financial adviser Ron Roge, who buys Treasury securities for his clients, says he won’t go near a bond fund because “when you put bonds inside a bond fund, you’re giving up the maturity date and the fixed income stream. Why else buy bonds?”
The safety-in-diversification benefit that funds tout doesn’t really matter when the underlying securities are all Treasuries backed by the government, fund critics note. And funds add another layer of fees that you don’t need when you’re dealing with plain-vanilla bonds: University of Buffalo professor Charles Trzcinka reckons some short-term Treasury funds charge 0.8 percent a year in management fees. With yields of around 5 percent, that’s a real price to pay.
