Many subscribers ask why The Kelly Letter uses three different bond funds across its three Sig plans. The funds it uses are:
3Sig: BND
6Sig: SCHZ
9Sig: AGG
The only reason I use three different funds is to illustrate that any general bond fund will do. If I used only one bond fund across the plans it would imply that I endorsed that specific fund. No, I am agnostic.
The above three bond funds are representative of their class, and nearly identical. They are as typical as general bond funds get. The takeaway is that whatever general bond funds are available in your accounts are fine for use in your Sig plans.
In fact, any of the Sig plans could use any of the bond funds used in the letter, and the letter could use any one of the bond funds in all three of its plans. Note their shared profiles, with data from Morningstar:
3/9/21 3-Year Trailing Returns (%)
– – – – – – – – – – – – – – –
+5.05 BND
+4.98 SCHZ
+5.01 AGG
12-Month Trailing Yields (%)
– – – – – – – – – – – – – – –
2.22 BND
2.44 SCHZ
2.15 AGG
Expense Ratios (%)
– – – – – – – – – – – – – – –
0.035 BND
0.040 SCHZ
0.040 AGG
For convenience, I prefer running my Sig plans in separate accounts, each with its own stock/bond fund pairing: IJR/BND for 3Sig, MVV/SCHZ for 6Sig, and TQQQ/AGG for 9Sig. The fund pairings are easy to conceptualize and easy to track.
Some subscribers ask whether it’s permissible to run all three Sig plans in one account, with each of the stock funds sharing the same bond fund. Yes, but it’s a hassle to track what portion of the bond fund balance belongs to which Sig plan, and tempting to let allocations slide as the market moves.
If the plans were in a shared-bond-fund environment, performance would not be meaningfully affected. It would just be a pain in the neck. Give yourself a break and separate your plans into different accounts.
Conclusion: Any general bond fund will work in any of your Sig plans.
