This kind of tough market shows us why we bother with bonds.
Over the past few years, tech stocks and other high-octane fare have lorded over the market, but they've cooled this year due to steep valuations, dipping growth and this election fiasco. The average tech fund is down more than 20% and growth funds that loaded up on tech stocks to swing for the fences are underwater too, according to
Morningstar.
Historically, bonds have trailed stocks' returns, but their more modest volatility can help keep your portfolio afloat in a tough year like this one. That's why most popular asset allocation models -- those candy-colored pie charts that tell you how much money to put in stocks or bonds -- still keep bonds or bond funds in the mix for aggressive investors.
The Daily Screen zeroes in on multisector bond funds, also called strategic income funds. This pack can be a good choice for fairly aggressive investors. They spread their assets among high-quality U.S. bonds as well as riskier U.S. high-yield or junk bonds and foreign bonds. We've sifted the category for those funds that beat their average peer over the past one- and three-year periods. Here's a top-10 list ranked by one-year returns.
Leading Multisector Bond Funds
These funds have topped their peers in recent years. |
| Fund | 1-Year Return | 3-Year Annualized |
| (MBMFX Quote)MDL Broad Market Fixed Income | 6.8% | 4.4% |
| (PDBAX Quote)Prudential Total Return | 6.0 | 4.0 |
| (STGBX Quote)Strong S/T Global Bond | 5.6 | 5.6 |
| (JAFLX Quote)Janus Aspen Flexible Income | 5.3 | 5.7 |
| (NARAX Quote)Phoenix-Goodwin Multi-Sector S/T Bond | 5.3 | 4.1 |
| (JPGSX Quote)JP Morgan Global Strategic Income | 5.1 | 3.8 |
| Janus Adviser Flexible Income | 4.4 | 5.0 |
| (AGSAX Quote)Alliance Global Strategic | 3.5 | 4.9 |
| (RPSIX Quote)T. Rowe Price Spectrum Income | 3.4 | 4.4 |
| (SSTOX Quote)Salomon Bros. Strategic Bond | 3.2 | 3.4 |
| Avg. Multisector Bond fund | 0.3 | 1.5 |
| S&P 500 | -1.6 | 13.8 |
| Source: Morningstar. Annualized performance figures through Nov. 14. |
OK, OK, so these numbers look pretty pale compared with the triple-digit gains that abounded last year. But long-term investors aren't typically looking at these funds for growth. Rather, they're looking for funds whose monthly income and decent capital appreciation potential can smooth out the market's bumps. Though the average multisector bond fund is slightly down for the year -- lest we forget these are fairly aggressive funds -- the category's losses aren't nearly as steep as the
S&P 500's.
Bond Age
This year, bond funds have been less vulnerable
to market suffering than stocks. |
 | Avg. Multisector
Bond fund | S&P 500 |
| YTD Return | -0.5% | -7.2% |
| 1-Year Return | 0.3 | -1.6 |
| 5-Year Return | 5.1 | 19.3 |
| 10-Year Return | 8.8 | 18.1 |
| Source: Morningstar. Annualized performance figures through Nov. 14. |
Among the funds on our list, the two
Janus funds are worth a look. They are essentially clones of the
(JAFIX Quote)Janus Flexible Income fund, and all of these portfolios are run by Ron Speaker with a fairly conservative bent. If you invest on your own you should check out the direct-sold Janus Flexible Income fund, which barely missed our cut, and if you work with an adviser, you should look at the
Janus Adviser Flexible Income fund.
If diversification is key, check out the no-load
(RPSIX Quote)T. Rowe Price Spectrum Income fund, where you get several funds in one. Manager Ned Notzon invests the fund's money in seven or so other
T. Rowe Price funds investing in U.S. bonds, foreign bonds and even a modest allocation to the firm's
Equity-Income fund. The approach has led to solid returns without too much volatility.
If you work with a broker, you might also look at a fund that didn't make our list, the
(JHFIX Quote)John Hancock Strategic Income fund. Here manager Fred Cavanaugh has shifted his sector emphasis over the years, leading to solid returns without much volatility. The fund's one-year return didn't make our list, but the fund's 7.1% five-year annualized return beats more than 85% of its peers.
If you're a die-hard indexer, you're not going to find an index fund in the multisector bond category. Instead, you could use the old standby, the
(VBMFX Quote)Vanguard Total Bond Market Index fund, which tracks the
Lehman Brothers Aggregate Bond Index. The fund's broad diversification, solid performance and minuscule 0.20% expense ratio make it a worthy choice.
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Ian McDonald
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