Top-Performing Bond Funds

Leveraged, global-income bond funds performed best in March.
By Sam Patel ,

The top bond funds for the month of March came in the form of leveraged and global-income funds. The global-income funds benefitted from the weakening U.S. dollar, which helped bolster their returns.

The best-performing global bond funds were the

Dreyfus Premier International Bond

(DIBAX) - Get Report

and

Delaware Pooled Trust-International Fixed Income Fund

(DPIFX)

.

Most of the returns of the Global funds in our lists are comparable and although strategies differ between them, one-month and three-month returns have been relatively consistent across the board -- around 3% and 11%, respectively.

DIBAX allocated 75% of assets into government securities of countries such as Germany (21% allocation), the U.K. (20.17%) and Japan (12.77%). The allocation to the U.S. totaled 8.65%. DIBAX also invested 19% in corporate debt instruments, primarily in financial services (5.11%) and banking (3.43%).

If you wanted to take more risk and employ leverage in bond investment, the two top performers --

Direxion 10 Year Note Bull 2.5X Inv

(DXKLX) - Get Report

and

Rydex Weakening Dollar 2x Strategy A

(RYWDX) - Get Report

-- were able to capture additional alpha, especially over the three-month horizon.

However, in the one month comparison, it looks as if DXKLX's strategy of generating investment returns of 250% of the daily price movement of the benchmark U.S. 10 year Treasury Note may not be yielding the same level of returns as in the past. With the

Federal Reserve's

actions stabilizing the credit markets to some degree, the specter of interest-rate cuts and further easing by the Fed does diminish, and hence yields on Treasuries may rise (i.e. prices fall), reducing the return of this fund.

It should be noted that this trend could go either way, should weak first-quarter earnings accompany what has already been weak fundamental data on the economy, forcing the Fed to once again entertain cutting rates further. So, near-term stability in the credit markets is a negative for this fund -- but long-term, fundamental weakness in the U.S. economy and further countercyclical policy (such as cutting interest rates more) will benefit DXKLX.

If investors feel the U.S. dollar will weaken further, then RYWDX's strategy of returning 200% of the inverse performance of the U.S. dollar Spot Index could continue to be profitable. However, the direction of the U.S. dollar is going to be very difficult to predict going forward.

Sam Patel, CFA, is the manager of mutual fund research for the TheStreet.com Ratings.

In keeping with TSC's Investment Policy, employees of TheStreet.com Ratings with access to pre-publication ratings data must pre-clear any potential trade through the legal department, and are prohibited from trading any security that is the subject of an unpublished rating revision until the second business day after the rating is published.

While Patel cannot provide investment advice or recommendations, he appreciates your feedback;

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