Top Fixed-Income Funds Allow Flight to Safety

"A flight to safety" would be fitting words to broadly describe the fixed-income mutual funds that received the top marks from TheStreet.com Ratings at the end of the first quarter.

Dominating the accompanying list of the highest-rated fixed-income funds are those ultra-conservative repositories for nonequity investment: money market funds. Seven of them made their way onto the list of the top-10-rated fixed income funds. With the words "Government" and "Treasury" embedded in five of their names, these tend to be virtually the safest of fixed-income investment vehicles.

Although six of the money market funds in the table achieved returns in the 4.1% to 4.5% range over the past 12 months, their returns for the first quarter, when annualized, indicate lesser annualized results.

However, unlike fixed-income funds with longer durations, the money market funds are virtually certain not to lose value if inflation hawks at the Federal Reserve prevail and reverse the recent downward trend in interest rates.

Only slightly more volatile than the steady money market funds, but still signaling in its name that it is secured by government investments, is the Vanguard Short-Term Federal Fund(VSGBX Quote - Cramer on VSGBX - Stock Picks).

Although the fund's total returns -- dividends plus price appreciation -- has exceeded any of the money market funds, it would be somewhat susceptible to erosion of its principal value if the level of interest rates reversed direction and heads higher.

However, being a short-term fund, the principal value of VSGBX will tend to fluctuate less in response to interest rate changes than would longer-term bond funds.

Interestingly, two municipal bond funds made it onto the top-10 rated fixed-income fund list. Tax-exempt funds have stabilized recently after being hit by issues including doubts about whether bond insurers could maintain their triple-A ratings as well as some potential legal issues about exemptions to state income taxes.

Like its VSGBX taxable sibling, the short maturities of the municipal bonds in the Vanguard Short-Term Tax-Exempt Fund(VWSTX Quote - Cramer on VWSTX - Stock Picks) portfolio will tend to lessen its volatility during periods of rising or falling interest rates.

TheStreet.com Ratings Top-Rated Fixed Income Funds
NAME, TICKER & TheStreet.com RATINGS GRADE	INVESTMENT OBJECTIVE	3-MO. TOTAL RETR'N (%)	12-MO. TOTAL RET'N (%)	3-YR. ANN'L RET'N (%)	SALES CHARGE TYPE
Calvert Social Invest MM Cl O (CSIXX) A+	Money Market	0.73	4.20	3.90	No Load
Colorado Bond Shs Tax-Exempt A (HICOX) A+	Municipal - Single State	0.63	4.49	5.26	Front Load
Evergreen Inst US Govt MM Inv (EGNXX) A+	Money Market	0.78	4.39	4.22	No Load
Federated Money Mkt Mgt Eagle (MMMXX) A+	Money Market	0.89	4.20	3.65	No Load
Fidelity Treasury Capital Reserves (FSRXX) A+	Money Market	0.45	3.44	3.52	Level Load
Monetta Trust-Govt Money Mkt (MONXX) A+	Money Market	0.79	4.41	4.07	No Load
UMB Scout Federal Money Mkt Inv (UMFXX) A+	Money Market	0.71	4.14	3.99	Level Load
US Govt Securities Savings Fund (UGSXX) A+	Money Market	0.72	4.21	4.05	No Load
Vanguard Short-Term Federal Inv (VSGBX) A+	US Gov. - Short & Interm	2.95	8.86	5.63	No Load
Vanguard Short-Term Tax-Exempt (VWSTX) A+	Municipal - National	1.39	4.71	3.51	No Load
APPLICABLE INDICES
Merrill Lynch 91-Day Treasury Index		0.88	4.62	4.41
Lehman Brothers Municipals		-0.61	1.91	3.71
Lehman Brothers Aggregate Bond		2.17	7.67	5.48
For an explanation of our ratings, click here. Source: TheStreet.com Ratings - Data as of 3/31/2008.