Bond Funds That Got Flight to Quality Wrong

The past year was a time to be invested in U.S. Treasuries. These funds got it backwards.
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The worst-rated fixed-income mutual funds were caught on the wrong side of the flight to quality.

Seven of the 25 fixed-income funds with the lowest overall scores from Ratings' quantitative investment model focus on high-yield debt. They bear the worst possible "reward," "risk" and "overall" grades from the model.

At the bottom is

Oppenheimer Champion Income A


, a corporate, high-yield fund that has tumbled 79% over the past year.


Direxion 10-Year Note Bear 2.5X Fund

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gained 2.4% in February, but is still down 22% over 12 months. The past year was the wrong time to be short U.S. Treasuries with 250% leverage. Ratings' quantitative model condenses fund data into a single composite opinion of risk-adjusted performance. There are also "reward" and "risk" grades. While there is no guarantee of future performance, Ratings' grades provide a solid framework for making informed investment decisions.

The grades can be interpreted as follows: A is "excellent" and considered a "buy" recommendation. B is "good" or "buy." C is "fair" or "hold." D is "weak" or "sell." And E is "very weak" or "sell." A plus or minus sign designates that a fund is in the top or bottom third of funds with the same letter grade.

Kevin Baker became the senior financial analyst for TSC Ratings upon the August 2006 acquisition of Weiss Ratings by, covering mutual funds. He joined the Weiss Group in 1997 as a banking and brokerage analyst. In 1999, he created the Weiss Group's first ratings to gauge the level of risk in U.S. equities. Baker received a B.S. degree in management from Rensselaer Polytechnic Institute and an M.B.A. with a finance specialization from Nova Southeastern University.