This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
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
TheStreet Open House

Bond Funds That Are Staying in the Black

Stocks in this article: FATRXFCDDXPIOBXUSIBX

NEW YORK ( TheStreet ) -- Last year, most bonds faced harsh conditions. According to Morningstar, intermediate-term bond funds lost 1.4% in 2013.

Rising interest rates caused the damage. When rates climb, most bonds tend to sink. The red ink unnerved shareholders, who withdrew $78 billion from intermediate funds.

But some funds stayed in the black. The winners include managers who have the flexibility to buy a wide range of bond sectors and credit qualities, including high-yield bonds, which are considered to be below-investment grade. The low-quality bonds provided an edge last year.

With the economy growing, shaky securities rallied as the risk of default declined. Typical intermediate funds hold few high-yield issues, preferring to emphasize Treasuries and other high-quality securities, which fell last year.

Funds that recorded gains in 2013 include Frost Total Return Bond (FATRX), Nuveen Strategic Income (FCDDX), Pioneer Bond (PIOBX) and USAA Intermediate-Term Bond (USIBX). If rates continue rising this year -- as many economists expect -- the winning funds could continue topping their peers.

Frost Total Return gained 3.8% last year. The fund often moves away from the benchmark sector weightings, focusing on out-of-favor bonds. Portfolio manager Jeffery Elswick has a big stake in commercial mortgage-backed securities. Those represent pools of mortgages made for office buildings and other commercial properties. The commercial mortgages were clobbered during the financial crisis. As property markets recovered last year, the securities revived.

Some of Elswick's holdings returned 10% for the year. "The commercial mortgage-backed securities have been outperforming because the market sold off too much during the financial crisis," Elswick says.

Last year Elswick had up to 15% of his assets in high-yield bonds. As the securities rallied, Elswick started trimming his position. But he says some of the bonds are still appealing. Bonds rated BB -- one step down from investment grade -- yield 5%, an attractive payout at a time when 10-year Treasuries yield 2.7%.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

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
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

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

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, 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
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
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!
DOW 17,195.42 +221.11 1.30%
S&P 500 0.00 -2.75 -0.14%
NASDAQ 4,566.1380 +16.9120 0.37%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs