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Should You Join the Crowd on 6 of the Hottest-Selling Funds?

Many of these funds are gaining investors who are fleeing PIMCO Total Return.

Fund flows tell us what’s on investors’ minds. I’m guessing many of you are contemplating buying some of the funds at the top of fund flow charts and selling some at the bottom. So, I thought I’d take a look at some of the actively managed funds that we rate near the top and bottom and shed light on their flows for the past 12 months ended in April 2015. 

You’ll notice that a big theme is investors seeking out replacements for  PIMCO Total Return (PTTRX) in the wake of Bill Gross’ dramatic departure in fall 2014.

Today, I will tackle the biggest sellers; next, I will tackle the biggest purchases.

 Metropolitan West Total Return Bond (MWTRX) $36 Billion
Why the big inflows? PIMCO without the drama. MetWest was started by ex-PIMCO managers, but there are some notable differences with PIMCO. First, MetWest avoids derivatives and vows to stay on that course. Thus, issue selection can still contribute, but it means MetWest may have to close to new investors at some point. Buy this fund and you get a pretty bold core bond fund that will make an array of bets on things like yield-curve positioning, credit-spread direction, and sectors. Many investors fleeing PIMCO have gone with this fund as an active option or with  Vanguard Total Bond Market Index (VBTLX) as a passive option. So, if aggressive is good for you, then by all means join the crowd on this excellent fund with a Morningstar Analyst Rating of Gold.

 Dodge & Cox Income (DODIX) $17 Billion
Why? This Gold-rated fund falls somewhere between MetWest and Vanguard Total Bond Market Index on the risk/reward spectrum and focuses on issue selection much more than on interest-rate bets and other tactics of the higher-risk funds. The portfolio is mostly corporate bonds and mortgages with some Treasuries thrown in. Another draw has to be Dodge & Cox’s management stability. The chances of PIMCO-esque personnel turmoil are remote. Dodge & Cox has a sizable and stable management team with no stars. I highly recommend this fund and, in fact, own it.

 Dodge & Cox International Stock (DODFX) $11 Billion
Why? This fund recently closed to new investors. The fund is knocking the cover off the ball. It’s a great fund with a Morningstar Analyst Rating of Gold, and I own it. If you don't own it, you can still learn from the example. You have stable management, high levels of manager investment, and low expense ratios.

 PIMCO Income (PONDX )$9 Billion
Why? Great returns under managers Dan Ivascyn and Alfred Murata. Ivascyn was named group chief investment officer following Bill Gross’ departure. The worry here would be that he gets overloaded, but so far we’re not too concerned. We kept this fund rated Silver after Gross’ exit, so, yes, it’s worth buying, but beware the risks. This is a multisector fund that currently has big stakes in high-yield bonds, foreign bonds, and nonagency mortgages. All of those are on the high-risk side of the bond world. The skippers have managed those risks with aplomb so far, but you can be sure there will be some years in the red.

 Vanguard Intermediate-Term Tax-Exempt (VWITX) $5 Billion
Why? No idea. This Silver-rated fund is an excellent choice, though I can’t explain why it happens to be receiving a ton of money now. It’s a well-run, low-cost fund and serves as a fine way to invest in high-quality munis. The fund has three fourths of the portfolio in bonds rated AA and higher, so there’s little credit risk. This is a peace-of-mind fund rather than a maximum-yield fund.

 Fidelity Total Bond (FTBFX) $5 Billion
Why? We now come to the last of the PIMCO Total Return replacements. The fund doesn’t have dramatic swings like PIMCO Total Return because it avoids big macroeconomic bets. Manager Ford O’Neil focuses on issue selection and takes a bit of additional credit risk to beat the benchmark. He’ll invest up to 20% in below-investment-grade credit. Overall, he’s done an excellent job, and I think this Gold-rated fund is a strong choice for a core fixed-income fund that won’t provide too many surprises.

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Russel Kinnel has a position in the following securities mentioned above: PTTRX, DODFX, VBTLX, DODIX. Find out about Morningstar’s editorial policies.