This Day On The Street
Continue to site
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

Ultra-Short Bonds Beating Money Markets

A cautious choice is RidgeWorth U.S. Government Securities Ultra-Short Bond (SIGVX), which yields 1.37%. During the past five years, the fund returned 3.8% annually and ranked as the top-performing ultra-short fund, according to Morningstar. RidgeWorth emphasizes AAA-rated mortgage-backed securities. The high-quality issues enabled the fund to stay solidly in the black during 2008.

Portfolio manager Chad Stephens currently favors adjustable-rate mortgage securities. These represent pools of home mortgages. As homeowners make their monthly mortgage payments, the cash is passed on to investors who hold the mortgage securities. The securities are extremely safe because they are backed by the government. Stephens likes securities that have maturities of about one year and yield around 1%. In comparison, one-year Treasuries yield 0.08%.

The mortgage securities provide extra yield because they come with prepayment risk. Prepayments occur when homeowners refinance their mortgages and pay off the principal. The money is paid to the holders of the securities. To understand the risk in the current market environment, consider that mortgage securities are typically issued at a price of 100.

In recent months, interest rates have fallen. When rates decline, bond prices rise. Now the prices of many mortgage securities have risen to more than 105. The premium price presents a risk to investors. If homeowners refinance, they will only pay investors the principal of 100. As result, investors who paid premium prices could suffer losses.

To avoid prepayments, Stephens seeks mortgages where the homeowners are unlikely to refinance. A promising investment could be a pool where homeowners bought their homes in 2005 and suffered as the value of the properties declined. Refinancing such homes is difficult. "If you don't have equity in your home, it is difficult to refinance," says Stephens.

To take on a bit more credit risk, consider Wells Fargo Advantage Ultra Short-Term Income (STADX), which yields 1.33% and returned 2.0% annually during the past five years. Portfolio manager Jay Mueller currently has 57% of his assets in corporate bonds. Mueller is particularly keen on short-term bonds that are rated BBB, the lowest investment-grade rating. Those yield more than 1.20%.

During the volatile markets of recent months, prices of corporate bonds have softened, but default risk remains limited, says Mueller.
2 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

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
Stocks Under $10

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

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

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
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AAPL $95.11 -0.07%
FB $117.76 0.28%
GOOG $692.73 0.05%
TSLA $232.87 0.24%
YHOO $35.91 -0.28%


Chart of I:DJI
DOW 17,686.19 -64.72 -0.36%
S&P 500 2,049.62 -13.75 -0.67%
NASDAQ 4,732.8370 -30.3870 -0.64%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs