Ginnie Mae or GNMA Funds: Avoid GNMA Funds???

» KirkL - Avoid GNMA Funds???

On "Back to Basics" - CNBC Labor Day - 9/6/99, Michael Holland said Avoid GNMA Funds. The other guest, I didn't catch her name, agreed in saying to avoid GNMAs.
Two reasons:

1. When rates go down, people refinance so you have to reinvest at a lower rate. This effectively lowers the average maturity when you want it to be long.
   
2. When Rates go up, people hold on longer so your effective average maturity goes longer, perhaps 15 yrs, when you want it shorter so you can refinance at higher rates.

I guess this is why they pay a higher effective rate.

Comments? I believe both Bob Brinker and Bill Flannagen both like GNMA's. I hold GNMA's but haven't thought about this much. I also own an intermediate term bond fund in my IRA.

-- posted by KirkL