Benchmarking bond fund against a bond ladder

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strakert
Posts: 85
Joined: Sat Oct 02, 2021 12:06 pm

Benchmarking bond fund against a bond ladder

Post by strakert »

Are there are any resources (forum posts / online tools / spreadsheets / research papers / published backtests / books) comparing the historical yield, excluding the return of principal (1), of:
a. A rolling (2) ladder of fixed duration (3) of individual bonds, and
b. Similar bond funds (i.e. same types of bonds and similar duration / average maturity)

I think this is esp. relevant for investors in accumulation stage who,
(1) do not care about return of principal yet, as they plan to hold the ladder/fund for a time period much longer than its duration ("forever").
(2) can not just create a one-time liability matching portfolio of individual bonds held to maturity.
(3) need an fixed duration to manage interest rate risk, in case they need to liquidate the ladder/fund in an emergency.

For such investors, it would be instructive to compare apples to apples when selecting between DIY-ing their own bond fund vs buying an off-the-shelf one.

I suspect the answer is that maintaining a rolling ladder is not worth the effort for young investors, but would be nice to have a conclusive analysis backing this, or to be proven wrong.
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