3 Bold Bond Funds
We look at three Gold-rated funds from our new intermediate core-plus bond Morningstar Category.
Susan Dziubinski: Hi, I'm Susan Dziubinski from Morningstar.com. Bond funds are often thought of as "sleepy" investments: the types of funds investors hold for their income and stability. However, some bond funds have a good deal of leeway in their mandates and have used their flexibility to generate exceptional long-term results. Today, we're looking at three Gold-rated funds from our new intermediate core-plus bond category that have done just that.
Sarah Bush: Loomis Sayles maybe best-known for bond fund legend Dan Fuss' Loomis Sayles Bond Fund but the firm has another topnotch offering in Gold-rated Loomis Sayles Core Plus. The fund's appeal starts with the experience of longtime managers Peter Palfrey and Rick Raczkowski. They draw on a deep and experienced analyst group. That research prowess is important, especially given the fund's broad and bold mandate. The fund can and has invested sizable stakes in high-yield corporate credit, emerging markets debt, and non-U.S.-dollar currencies. This can make for a potent mix, and indeed, the fund stumbled in 2015. Over time, however, the team has put its flexibility to good use, and they've sidestepped many risk market sell-offs. The fund has also posted good returns in healthy credit markets leading to a topnotch long-term record.
Eric Jacobson: Gold-rated Harbor Bond has always been a kind of back door into PIMCO's Total Return strategy, because it offers the same strategy as PIMCO Total Return run by the same management team but with a modestly priced institutional share class into which Harbor allows investors with only $1,000 minimum investment. This fund and PIMCO's overall Total Return strategy are much, much smaller than they were a few years ago. But PIMCO has managed those outflows very well. Meanwhile, the strategy is run by Scott Mather, Mihir Worah, and Mark Kiesel, all senior leaders at the firm who align a truly vast array of managers and analysts across the entire spectrum of the bond market. The fund itself is what we refer to as a core-plus offering:It still focuses on the high-grade U.S. market, but with the benefit of flexibility to add in sectors and structures outside the markets' plain-vanilla core. There are ultimately a couple of key arguments for this fund and the strategy more broadly. One is that PIMCO has proven that it's still an extremely strong organization and it's still home to some of the industry's best investors, including the managers of this fund. PIMCO still managed to perform well when this fund and PIMCO Total Return were much, much larger. But the job eventually just got harder and harder. The managers running this strategy today still have terrific resources at their disposal, though, and they can put them to work more easily inside of more-manageable portfolios. Those are just a couple of reasons we still believe this is a great option for investors in need of a high-quality bond fund.
Benjamin Joseph: Gold-Rated Dodge & Cox Income stands out for its relatively patient and, at times, contrarian approach to investing. The managers, who average 21 years of experience, start with an investment horizon of three to five years. They run a fairly compact, mostly cash-bond portfolio. The team tends to favorite corporates, noting that the yield advantage offered by the securities is an important contributor to total returns over time. Over the long haul, patience and a focus on fundamentals has paid off. The strategy's trailing 10-year annualized return of 4.9% through June 2019 beats two thirds of existing peers and outperformed its Bloomberg Barclays U.S. Aggregate Bond Index benchmark by 100 basis points. Its performance also looks strong on a volatility-adjusted basis, with a Sharpe ratio over the same period that lands in the best quintile of its category. With low fees and skilled managers, this fund is a strong option.
Sarah Bush does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.