By NELLIE S. HUANG Kiplinger News Service on Sep 15, 2013, at 1:46 PM Updated on 9/16/13 at 7:02 AM
The recent bond market hiccup left many investors reeling.
From May 2 through Aug. 1, during which bond yields surged, Barclays U.S. Aggregate Bond index sank 3.8 percent. As a group, the seven bond mutual funds in the Kiplinger 25 fared slightly better, but still suffered an average loss of 3.1 percent.
Our two go-anywhere bond funds held up well. Osterweis Strategic Income (symbol OSTIX), with its strategy of focusing on short-term high-yield debt and convertible bonds that behave a lot like stocks, eked out a 0.1-percent gain.
And the managers at Metropolitan West Unconstrained Bond (MWCRX) staved off disaster by selling short Treasury bonds (a bet on falling prices) with a small portion of the fund’s assets. The fund lost 1.4 percent.
Vanguard Short-Term Investment-Grade (VFSTX) surrendered 1.0 percent. The fund benefited from its focus on short-term debt, typically bonds maturing in one to five years. Manager Greg Nassour says he runs “a high-quality fund very conservatively.”
Emerging-markets bond funds took it on the chin, and Fidelity New Markets Income (FNMIX) was no exception, sinking 7.8 percent. Fears that the end of the Federal Reserve’s easy-money policies would lead to higher interest rates around the globe put a strain on emerging-markets debt.
Manager John Carlson took advantage of the selloff to add to his position in Hungarian bonds. In volatile, fear-driven markets, he says, “people throw out the good with the bad.”
Emerging-markets bonds and Treasury inflation-protected securities got the better of Harbor Bond (HABDX) which lost 4.6 percent. Harbor is a near-clone of Pimco Total Return, the largest mutual fund in the U.S. At the end of June, manager Bill Gross had 12 percent of Harbor’s assets in TIPS and emerging markets. For TIPS investors, it was the worst of two worlds: Interest rates jumped while evidence of inflation was scant.
At DoubleLine Total Return (DLTNX), Jeffrey Gundlach and Philip Barach edged the bond market by sticking with their barbell approach to mortgage bonds: They balance government-agency mortgage-backed securities (46 percent of assets), which have no default risk but a fair amount of interest-rate risk, with non-agency mortgage securities (26 percent of assets), which have little rate risk but a high amount of default risk. The fund dropped 3.3 percent.
Fidelity Intermediate Municipal Income (FLTMX), the lone tax-free fund on our list, fell 3.8 percent. That compared with a 4.5-percent decline for the average medium-maturity national muni fund.
Nellie S. Huang is a senior associate editor at Kiplinger’s Personal Finance magazine. Send your questions and comments to
moneypower@kiplinger.com. And for more on this and similar money topics, visit tulsaworld.com/kiplinger.
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