5 Best Bond Funds To Guard Your Nest Egg [iShares Barclays Aggregate Bond Fund]

nest-eggDavid Fabian: Bond funds were largely written off in 2013 as tens of billions poured out of these stalwart dividend vehicles last year.  Fears over rising interest rates helped to put downward pressure on fixed-income and aggregate bond indexes realized their worst year in nearly a decade.  Speculation over the Fed tapering its quantitative easing efforts only added fuel to the inflationary debate as well.

However, the combination of weakening economic data and stock market volatility has led to resurgence in bonds this year that should be a wake-up call for income investors.  The realization that tapering has not led to a significant rise in interest rates should be another red flag that bonds aren’t as dangerous as they have been made to seem.

Many performance chasing portfolios are now overweight stocks and underweight bonds which could spell disaster if the market continues to show signs of weakening.  The following five funds represent actively managed fixed-income strategies that offer the opportunity for capital appreciation and solid dividend streams this year.

PIMCO Income Fund

Despite the looming threat of higher interest rates, I am still continuing to look for opportunities in fixed-income that are designed to maximize income while focusing on risk management.  An actively managed mutual fund that is one of my favorite core holdings is the PIMCO Income Fund (PONDX) which is managed by Dan Ivascyn.

Coincidentally, Ivascyn was just recently named the 2013 Bond Fund manager of the year by Morningstar and was promoted to deputy CIO at PIMCO.  He has a long track record of spotting early trends and capitalizing on security selection through this research.

PONDX takes a multi-sector approach to specific areas of the bond market that the manager feels will outperform over time.  They have done a fantastic job of managing interest rate risk in 2013 and taking advantage of opportunities (both inside and outside the U.S.) when they are available.  This has led to 2013 returns of better than 4.5%, an effective duration of less than 5 years, and a current 30-day SEC yield of nearly 4%.

One of the interesting features of PONDX is that the fund accrues interest daily and distributes it monthly.  So it does not subtract dividends from the NAV of the fund when distributions are paid.  This allows you to reinvest additional shares as income that builds your position over time.

Loomis Sayles Bond Fund

Another multi-sector bond fund that takes a different approach to diversification is the Loomis Sayles Bond Fund (LSBRX).   This fund seeks high total investment return through a combination of current income and capital appreciation.  One of the interesting characteristics of LSBRX is that it may invest up to 20% of its assets in common or preferred stocks and up to 20% in international develop or emerging market countries.

The manager believes that this non-traditional diversification strategy will enhance the long-term returns of the portfolio vs. its benchmark.  A fund like LSBRX is hard to categorize because it has the ability to hold such a wide array of investment options in its arsenal.  However, the historical results have impressive.  It had a 2013 total return of 5.52%, 3-year annualized return of 7.81%, and 5-year annualized return of 14.20% according to the fund manager’s website.

The fund is currently managing nearly $22 billion in total assets with a 30-day SEC yield of 3.27%.  If you are looking for a global strategy that offers a unique asset allocation slant, then LSBRX should definitely be on your radar.

Pages: 1 2

Leave a Reply

Your email address will not be published. Required fields are marked *