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

Bond Funds That Are Staying in the Black

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

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 $94.02 -2.67%
FB $104.07 -5.81%
GOOG $683.57 -3.45%
TSLA $162.60 -7.26%
YHOO $27.97 -4.05%


Chart of I:DJI
DOW 16,204.97 -211.61 -1.29%
S&P 500 1,880.05 -35.40 -1.85%
NASDAQ 4,363.1440 -146.4150 -3.25%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs