Best Fixed-Income Funds Rode Dollar Woes

The best-performing fixed-income funds in July shared the strategy of holding debt instruments in local currencies. As the value of the U.S. dollar lags vs. the currencies of the foreign countries where the bonds were originally sold, the calculated net asset value in U.S. dollars can rise.

With a July total return of 5.54%, the Pimco Emerging Local Bond Fund(PELAX Quote - Cramer on PELAX - Stock Picks) had the best month of all the fixed -ncome funds we track. Along with U.S. treasuries in dollars, the fund holds sovereign Brazilian debt in reals, sovereign Czech Republic debt in koruna, and sovereign Mexican debt in pesos.

In second place, up 4.99% in July, the Eaton Vance Emerging Markets Income Fund(EEIAX Quote - Cramer on EEIAX - Stock Picks) follows a similar strategy. This fund invests about two-thirds of its assets in government securities, with the remaining in mortgages and cash. The allocation by country includes 30.9% U.S., 11.6% Hungary, 11% Mexico, 10.5% Brazil, and 7.8% Indonesia.

The one fund on this top 10 list taking a substantially different strategy is the Direxion 10-Year Note Bull 2.5X Fund(DXKLX Quote - Cramer on DXKLX - Stock Picks). The fund uses futures contracts to model 250% of 10-year U.S. Treasury note price movements.

So far in August, the U.S. dollar has reversed course with the dollar index, gaining 5.3% against a basket of major world currencies. Continued dollar strength, while good for bringing down gasoline prices, may be bad for the above funds.

10 Best Performing Fixed Income Mutual Funds in July
Fund (Ticker) Rating	Objective	1 Month Total Return %	3 Month Total Return %
PIMCO Emerging Local Bond Fund A (PELAX) U	Emerging Market Income	5.54	3.34
Eaton Vance Emer Market Local Inc A (EEIAX) U	Emerging Market Income	4.99	5.98
MSIF Inc. Emerging Markets Debt H (MSEHX) U	Emerging Market Income	3.62	3.28
Goldman Sachs Local Emg Mkt Debt A (GAMDX) U	Emerging Market Income	3.43	3.12
Standish Mellon Intl Fix Inc Inst (SDIFX) C	Global Income	2.34	0.71
PIMCO Developing Local Mkt A (PLMAX) C+	Global Income	2.12	2.97
Lord Abbett Devp Loc Mkt Fd A (LDMAX) C+	Global Income	1.81	3.82
Templeton Global Bond A (TPINX) C+	Global Income	1.81	-2.07
Direxion 10 Year Note Bull 2.5X Fd (DXKLX) C	US Treasury	1.70	-0.04
GMO Currency Hedged Intl Bond III (GMHBX) D	Global Income	1.66	-0.35
Source: TheStreet.com Ratings

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