An earlier post in Bond Squad raised the question of whether or not SWBDX had becomoe "toxic." Looking at the Morningstar data for the fund's holdings may explain some of its recent performance.  In response to the original post I said: "As a short term bond fund its performance seems out of sync with other such funds.  In particular a comparison with VFSTX perhaps illustrates the problem.  Part of the problem may be traceable to the fact that--per Morningstar-- VFSTX only has 12.9% in mortgage whereas SWBDX has 30.14% in mortgage.  And they are not GNMA quality--SWBDX has 29.37% in Mortgage CMO,  In addtion, note that SWBDX portfolio is weak with 5.2% of its holdings NOT rated.  In addition 14% is BBB or lower in quality."

Keep in mind that an ultra short "sister" fund (SWYPX) recently had a major withdrawal run against it and it is now a subject of a class action lawsuit.

A lack of confidence in Schwab Bonds???

[quote user="VinoSupremo"]

Keep in mind that an ultra short "sister" fund (SWYPX) recently had a major withdrawal run against it and it is now a subject of a class action lawsuit.

A lack of confidence in Schwab Bonds???[/quote]

 

I think part of it is due to the underlying securities, and the rest is a ripple effect that's being felt across its bond fund offerings.

I had SWBDX for five years or more, and it was rock-solid.  I had almost a quarter of my portfolio in it during the 2001-2002 bear market and it helped me get through that with less than a 10% portfolio loss overall (both years combined).  But it apparently didn't take much to bring down the house of cards.  

 I got out of this one when the NAV dropped from 10 to 9.62 over a three-week period. When something smells that bad in such a short time (investment-grade bonds should not lose 4% of its NAV in a stable- to declining interest rate environment), you get out.  It was starting to smell like YieldPlus all over again.

I did that when SWYPX dropped from 9.68 to 9.61 last August when the subprime slime started rolling, and I did it here.  And now this "alternative to cash" is down to 6.85, which even after dividends is down more than 23% YTD.  I didn't lose enough in the fund to feel like I need to participate in the laswuit; I lost about 0.7% of NAV but more than made up 0.7% in increased yield over money market funds, so I got out in time to come out ahead overall.  But all those people seeking higher yield in a market where safe yields were approaching zero, they got burned by the marketing and not in understanding what was starting to happen. 

Good analysis! I got burned somewhat by the Ultra short fund and in that case I just did not understand--as you say--what was happening. The perils of being a retial investor, I suppose.  The Short Term fund really caught me by surprise. Fortunately most of my bond mutual funds are with others and they have held up and performed as expected.