Bob Brinker's Advice on Ginnie Maes [VFIIX]

June 6, 2009: On Moneytalk, Bob Brinker has recommended Vanguard Group's Ginnie Mae Fund for a long time now. It is 40% of his Marketimer Fixed Income Portfolio and 20% of Model Portfolio III.

From Vanguard Group Website:

Seeks to provide a moderate level of current income. Invests primarily in Government National Mortgage Association (”Ginnie Mae”) securities. These securities are backed by the U.S. government to provide timely payment of principal and interest. Follows no specific maturity guidelines but typically maintains a dollar-weighted average maturity of 3 to 10 years.

VFIIX has recently been trading near its all-time-high, but a rise in interest rates would cause the NAV of most bond funds to drop, including Ginnie Mae Funds (with the possible exception of High Yield Bond Funds). Today, it closed at $10.54, with a SEC yield of 4.16%. Just a few days ago, the NAV was above $10.70.

Here is a recap of Bob Brinker's recent Moneytalk comments about Ginnie Maes:

Bob Brinker said: "Ginnie Maes are guaranteed by the full faith and credit of the Treasury."

A subscriber-caller asked Brinker about Ginnie Maes. Brinker said that he had been recommending VFIIX for a long, long time. He said that there is no credit risk with them, but the NAV will fluctuate in a narrow range. Brinker said that over the past couple of decades VFIIX has usually fluctuated between $9.50-$10.50, and he expects that to stay about the same in the future.

March 1, 2009: GINNIE MAE/BOND MARKET OUTLOOK..... Brinker said: "I would say that the principle variable in the bond market for quality holdings is going to be the overall direction of interest rates.......Now in terms of the direction of interest rates.......that's where you look at the economy. In other words, if you saw an economy that started to show signs, now remember..... that prior to the first signs appearing -- and they have not appeared -- prior to the first signs appearing, we won't have any information in hand."

"OBAMA'S BONDS".....Brinker said: "You know, when I saw this budget.....I have to tell you the first thing that popped into my mind was, these are Obama bonds.....These trillions of dollars in bonds to pay for all this spending, these are Obama bonds. I think they should call these, United States of America Obama Bonds. The fact is, I have never seen such a spending proposal in my entire life. I mean, it's incredible. I mean, it's unbelievable."

Kirk Lindstrom does not agree with Brinker that VFIIX will always bottom out at $9.50.

Kirk said: "If we get massive inflation from the trillions of fiscal stimulus to keep the economy from crashing, then we could see high interest rates down the road which will be bad for Ginnie Maes and Ginnie Mae Mutual funds like VFIIX......One reason to listen to Brinker's show is to hear what callers are talking about. Brinker usually likes to let folks on who have had good results with his past recommendations. You should look at this like a contrarian and take profits in that to buy what he is not talking about....." [LINK]


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