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Fund Spy

Has Your Bond Fund Been Acting Like One?

Heavy credit or currency risk can make for more equitylike returns.

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One of the reasons for owning bond funds is diversification from equities, so we thought we'd look for bond funds that move in sync with stocks.

These funds have their merits, but they offer less diversification than the typical bond fund. U.S. high yield, emerging-markets bonds, and bank loans have been the most highly correlated with the S&P 500 during the past three and five years, so funds that invest in these sectors, even at the periphery, may not offer the stability many investors seek.

Karin Anderson has a position in the following securities mentioned above: TGBAX. Find out about Morningstar’s editorial policies.