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I know I have asked a similar question in the past But!
Looking at my Fidelity MMF and Dodge Cox Balance funds I can't help but notice that they contain Freddie and Fannie Bonds. I get the part about they are guaranteed by Freddie and Fannie but not really by the US government. Can someone explain how might my funds be affected by the recent drop in Freddie and Fannie share price? Or put another way I know the Freddie and Fannie shareholders will take it on the chin but what about the holders of the bonds themselves such as Fidelity?

Thanks
Pappy
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Looking at my Fidelity MMF and Dodge Cox Balance funds I can't help but notice that they contain Freddie and Fannie Bonds. I get the part about they are guaranteed by Freddie and Fannie but not really by the US government. Can someone explain how might my funds be affected by the recent drop in Freddie and Fannie share price? Or put another way I know the Freddie and Fannie shareholders will take it on the chin but what about the holders of the bonds themselves such as Fidelity?

Yes, if Dodge owns Freddie and Fannie stock shares, the fund will sustain losses on those holdings to the extent Freddie and Fannie shares lose value.

As to the money market, you need to see if you can find out the holdings (this easy easy with Vanguard, if not up to date). Vanguard Prime MM had about 25% holdings in commercial paper (the rest was Treasury or government), and that was rated AA, for what that's worth (I take it to mean they owned Freddie and Fannie but not recognized sub-prime junk). So a rough guess would be a risk of up to 10% defaults on the commercial paper or 2.5% losses. Finding Fidelity holdings would allow you to make a similar guess.
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Lokicious,

I guess I am having trouble differentiating between Freddie Mac shareholders and bond holders. Looking at DODBX they refer to shares held but then on the side it states coupon rate giving me the impression that they are holders of Freddie Mac Bonds. Just a rough adding of Freddie and Fannie it appears to be estimated number of 4 billion of the 28 billion in the fund. So if it was a complete loss it would be about 14% of the porfolio. But like you said we are probably looking at a smaller percentage of that 4 billion so therefore not something I personally will fear. I have yet to find the break down on the Fidelity MMF. I will keep looking.

As always thanks for your response and thoughts.

Pappy
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I guess I am having trouble differentiating between Freddie Mac shareholders and bond holders. Looking at DODBX they refer to shares held but then on the side it states coupon rate giving me the impression that they are holders of Freddie Mac Bonds. Just a rough adding of Freddie and Fannie it appears to be estimated number of 4 billion of the 28 billion in the fund. So if it was a complete loss it would be about 14% of the porfolio. But like you said we are probably looking at a smaller percentage of that 4 billion so therefore not something I personally will fear. I have yet to find the break down on the Fidelity MMF. I will keep looking.

It is possible DODBX holds both Fannie and Freddy stocks and mortgage bonds. One think I like about Vanguard is I can find holdings with a quick click. Vanguard's balanced funds that are like Dodge and Cox (i.e., value oriented stocks, stock and bond picking, not balanced indexing) are Wellington (about 2/1 stocks) and Wellesley (about 1/2 stocks). Neither or them seem to have significant exposure to mortgage bonds, and most of that is government backed, which I think means GNMA.
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It is possible DODBX holds both Fannie and Freddy stocks and mortgage bonds. One think I like about Vanguard is I can find holdings with a quick click.

I'm getting confused. I think the original question was about the Fannie and Freddy bonds. And I think the question was not about the company stock or company bonds but about the mortgage backed bonds issued by the Federal National Mortgage Association (FNMA). And that would be bonds identified as FNMA REMICs. The REMIC is, I believe, Real Estate Mortgage Investment Conduit, or something like that.

What is our take on the safety of such bonds?

I think we're all agreed that GNMA REMICs are backed by the "full faith and credit of the U.S. Government".

But the others, FNMA and FHLMC REMICs... what about them? Safe or not safe?

I was led to believe that they're investment grade, super safe (although not backed by the gov't).

Anyone?

Andy
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