This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Top Bond Funds Aren't for the Risk-Averse

The top-performing sectors for bond funds in the second quarter focused on funds that invested in floating-rate loans and other floating-rate securities, and those that invested in senior secured floating-rate securities.

In general, the mandate of these funds is to seek current income and have capital preservation as a secondary criterion. This obviously isn't the type of fund for risk-averse investors.

These funds are classified as either loan-participation funds or corporate high-yield by ratings classifications used by The average return for each of these categories was 2.17% and 1.22%, respectively, for the three months ended June 30.

The best-performing funds were the ING Senior Income Fund (XSIAX) (6.11%), the Eaton Vance Floating Rate Advantage fund (EAFAX) (5.91%) and the AIM Floating Rate fund (AFRAX) (5.73%).

Chasing yield or income on its own, with a secondary commitment to capital preservation, is for a certain type of "opportunistic" investor, given the volatility and uncertainty in markets at present. This is akin to being a fox in a henhouse -- you want to make sure you get out before anyone notices.

Should markets continue to deteriorate, investors who are exposed to these types of funds will be punished for their lack of attention to capital preservation. Also, it's almost illogical at a time like this to be chasing such a low yield of, say, 6% at the risk of a far greater percentage fall in one's capital base. Investors should always look at the risk being taken vs. the potential return.

It would be less risky to chase a lower yield of, say, 4% with far greater capital preservation potential as offered by utility funds.

So in the example above, an investor looking to invest in, say, a loan participation fund and chase a 6% yield is taking on a disproportionate level of risk for the additional 2% yield, when there exists a 4% yield in a utility fund that takes income and capital preservation as equal considerations.

Sam Patel, CFA, is the manager of mutual fund research for the Ratings.

In keeping with TSC's Investment Policy, employees of Ratings with access to pre-publication ratings data must pre-clear any potential trade through the legal department, and are prohibited from trading any security that is the subject of an unpublished rating revision until the second business day after the rating is published.

While Patel cannot provide investment advice or recommendations, he appreciates your feedback; click here to send him an email.

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,804.80 +26.65 0.15%
S&P 500 2,070.65 +9.42 0.46%
NASDAQ 4,765.38 +16.9840 0.36%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs