Despite the looming threat of higher interest rates, I am still continuing to look for opportunities in fixed-income that are designed to maximize income while focusing on risk management. An actively managed mutual fund that is one of my favorite core holdings is the Pimco Income Fund (PONDX) managed by Dan Ivascyn.
PONDX takes a multi-sector approach to specific areas of the bond market that the manager feels will outperform over time. They have done a fantastic job of managing interest rate risk in 2013 and taking advantage of opportunities (both inside and outside the U.S.) when they are available. This has led to 2013 returns of better than 4.5%, an effective duration of less than five years, and a current 30-day SEC yield of nearly 4%.
While the strength of stocks and concomitant rise in interest rates was the story for 2013, I would not be so quick to discount a potential return of strength in bonds this year. If we see a return of volatility in equity prices, there will more than likely be a flight to quality in fixed-income that will reinforces a deflationary trade. That is why I am recommending that you continue to hold strategic core bond positions to diversify your income portfolio.
The key to success moving forward is to select funds and/or managers that are adding value through their security selection and investment outlook. My comparison of the returns of Bill Gross vs. Dan Ivascyn is one example of a changing of the guard at Pimco that may continue to develop momentum over time. It should be an opportunity for the "Bond King" to pass his crown to a new generation of portfolio managers that are hitting their stride and offering innovative strategies to their clients.At the time of publication the author had a position in PONDX. Follow @fabiancapital This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.
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