Skip to Content
US Videos

Pay Attention to the Risks Your Bond Fund Is Taking

Intermediate bond funds may sound similar, but they source opportunity and court risk in different places.

Mentioned: ,

Emory Zink: Within the intermediate-term bond category, investors may choose from a broad menu of options, and while the variety is encouraging, it behooves an investor to pay attention to the idiosyncrasies of funds. 

For example, AB Intermediate-Term Bond and Fidelity Intermediate-Term Bond may appear similar at first glance. Both manage duration closely to their respective benchmarks, and both are biased toward higher-quality holdings versus their typical category peer. Yet, if you take a closer look, the funds source opportunity from different places. The Fidelity fund uses the Bloomberg Barclays Intermediate Government/Credit Index as its benchmark, which tends to be less interest-rate sensitive than AB's Bloomberg Barclays US Aggregate Bond Index benchmark, the typical benchmark for the broader category. While both funds hold mortgages, Treasuries, and corporates, AB Intermediate-term bond has the flexibility to take more risk in a variety of areas, including more complex structured products, high yield, and non-U.S. dollar currencies. As of June 2017, the 12-month SEC yield on AB sits at 2.4% versus 1.9% for Fidelity.

Emory Zink does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.