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2 Gold-Rated Options for Your Core Bond Needs

Western Asset Core Bond and Dodge & Cox Income use different but equally valid processes to balance economic uncertainties with investor expectations.

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Alfonzo Bruno: As we approach the end of the third quarter, a wide range of macroeconomic-related risks have concerned fixed-income investors--from rising interest rates in the U.S., to global trade tensions and geopolitical uncertainty, through to emerging market vulnerability, just to name a few. In core bond funds, which often serve as the anchor in a diversified fixed-income portfolio, these risks pose particular challenges.

In this environment, portfolio managers must balance economic uncertainties with investor expectations of a core bond strategy, and this has resulted in different but equally valid process approaches in the cases of Western Asset Core Bond and Dodge & Cox Income, both Gold-rated constituents of the intermediate-term bond Morningstar Category.

Western Asset relies on a top-down framework to guide allocation decisions while adjusting based on their predictions for interest rates and spreads, as it has kept its duration higher than that of its index. That approach was visible in the fund's top decile return over the last 10 years.

Top-down views have less of a guiding voice at Dodge & Cox Income. The team looks to their fundamental, value-bias to correctly select outperforming securities over a three- to five-year horizon leading to a relatively concentrated portfolio of just 50 issuers. Here, its bottom-up emphasis has led to top quartile returns over the trailing 10 years.

Both approaches have their merits, and each are more than suitable options for your core bond needs.

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