Three Bond Funds Worth Buying

TSC Ratings provides exclusive stock, ETF and mutual fund ratings and commentary based on award-winning, proprietary tools. Its "safety first" approach to investing aims to reduce risk while seeking solid outperformance on a total return basis.

TheStreet.com Ratings has assigned "buy" grades to three of five newly rated mutual funds that invest in bonds.

Among the funds, which have at least three years of performance data, one received our top rating of "excellent." We deemed two more "good." The other two earned "sell" grades.

With an initial grade of A-plus, the American Century NT Diversified Bond Fund (ACLDX Quote) has returned 6.9%, on average, a year in the past three years and 6.1% in the 12 months through May. Almost half of the fund's assets are split between government and corporate bonds. Mortgage and municipal debt make up another 41%.

This no-load fund holds the fixed income securities of Morgan Stanley (MS Quote), AT&T (T Quote), Oracle (ORCL Quote), and Bank of America (BAC Quote).

We initiated coverage of the second-highest ranked fund, the State Farm Bond Fund (BNSAX Quote), with a grade of B-plus. This investment-grade bond fund has a 3% front load that works against its 6% average annual return during the past three years. Among the fund's 60% corporate debt holdings, standout names include Coca-Cola (KO Quote), Eli Lilly (LLY Quote), and 3M (MMM Quote).

The last of the "buy"-rated funds, the State Farm Tax Advantaged Bond Fund (TANAX Quote), starts out with a B grade. This fund also has a 3% front load. The portfolio of U.S. municipal debt returned 5.1% annually, on average, in the past three years.

Among the two funds with "sell" ratings, the UBS PACE Select Advisors Trust High Yield Investments Fund (PHIAX Quote) earned a D grade. The fund returned 1.4% annually, on average, in the past three years, including a loss of 4.3% in the 12 months through May. This corporate debt fund charges a high front load of 4.5% and holds securities issued by Ford (F Quote), Owens-Illinois (OI Quote), and El Paso (EP Quote).