Swedroe on GNMAs for your Bond Allocation

Always worth reading, here’s Swedroe’s recent piece about whether or not to use GNMA (mortgage-backed securities) as your bond allocation:


Some things he notes:

  • A 60/40 portfolio with intermediate treasuries has had a higher return and lower volatility than a similar portfolio with GNMAs
  • GNMAs have a higher correlation with equities (which explains a lot of the above point)
  • Over extended periods, GNMAs have underperformed treasuries (though they may have a higher current yield – an important point about the difference between yield and total return)

Some things he doesn’t discuss

  • Volatility – in isolation – of GNMAs vs treasuries
  • Current valuation (especially of treasuries)
  • An income-focused portfolio rather than the total-return approach


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