AboutWarren Boroson Expertise Author of "Keys to Investing in Mutual Funds" (Barrons), "Ultimate Mutual Fund Guide" (Probus), "How to Pick Stocks Like Warren Buffett" (JKLasser), and "The Reverse Mortgage Advantage" (McGraw-Hill). Former financial columnist for Gannett News Service.
Experience Author of 20 books; winner of 1996 Personal Finance award from Investment Company Institute and Washington University. Formerly on staffs of Money and Sylvia Porter's Magazine. Had a radio program (on WEVD) about mutual funds and a newsletter, FundDigest.
Expert: Warren Boroson Date: 9/19/2005 Subject: Bond index funds
Question Dear Warren
Please help to understand MorningStar info on index bond funds:
1. Why they evaluate risk of Vanguard funds indexing Intermediary Government bonds as high? (I think Gov bonds are reliable investments)
2. When they put returns: 1-year, 3-years, 5-years I understand that this is average per year. Does return include dividends? Is fund commission deducted from return? (in other words I would like to understand how to calculate net profit/loss on such investment)
Yours
Yuri
Answer
Answer from Don Phillips, managing director, Morningstar
The reader is right in his thinking about the general risk of government bond
funds.
Our risk score, however, is based on the fund's volatility relative to other
intermediate-term government bond funds, not on an absolute basis.
Recently, many actively managed funds have pulled back their durations in
anticipation of rising rates, leaving the Vanguard index funds with longer
durations, and hence more interest-rate risk, than most peers, resulting in
higher volatility and a higher risk score.
Our returns do include dividends and all expenses deducted from the fund's NAV.
They do not include up front or deferred sales charges.
