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

Funds That Win With High-Quality Bonds

To outdo the Barclays benchmark, Wells Fargo aims to find bargain-priced bonds and overweight attractive sectors. While the index has 35% of assets in Treasuries, Wells Fargo only has 15% of assets in the sector. Instead the fund is overweight agency mortgage-backed securities. Those represent pools of home mortgages. While mortgages can default, the risk for investors is negligible because the securities are backed by the government and carry AAA ratings. Portfolio manager Troy Ludgood likes the agencies because they yield 80 basis points (0.8 percentage point) more than Treasuries.

The fund has 22% of assets in corporate bonds, including an overweight position in issues from REITs, companies that own portfolios of properties. Ludgood says that the outlook for REITs is improving, and the securities yield 200 basis points more than Treasuries. "Property values are in an upward trend," he says.

Touchstone Total Return is another fund that outperformed in 2008. The portfolio managers limited losses by steering away from shaky subprime mortgages. During the past ten years, the fund returned 5.9% annually.

Touchstone is currently underweight Treasuries and has 58% of assets in mortgage securities that are guaranteed by such government agencies as Fannie Mae and Ginnie Mae. The managers prefer mortgages for multifamily units instead of loans for single-family homes. The problem with the single-family securities is that the mortgages are prone to prepayments, which can occur when homeowners refinance, sell, or default. When prepayments occur, mortgage investors receive back their principal and must reinvest it at today's low rates. Prepayment risk can hurt prices of mortgage securities. Multi-family mortgages have less prepayment risk and provide the kind of predictability that the Touchstone managers prefer.

Stan Luxenberg is a freelance writer specializing in mutual funds and investing. He was executive editor of Individual Investor magazine.
2 of 2

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
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!
AAPL $126.98 -0.49%
FB $84.34 1.50%
GOOG $536.94 0.29%
TSLA $209.14 1.90%
YHOO $44.86 0.46%


DOW 17,999.14 -35.79 -0.20%
S&P 500 2,100.33 -0.07 -0.00%
NASDAQ 5,015.3120 +20.71 0.41%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs