As interest rates fell and fixed-income investors, rattled by the credit crunch, fled to the safety of securities guaranteed by Uncle Sam, U.S. Treasury bonds have captured the spotlight.
As a result, the five Treasury bond funds in the accompanying table outperformed all other open-end fixed-income funds in August, with the exception of the omnipresent "leveraged" and "inverse" entries.
The adjoining table also represents a rarity in these financially troubling times: a compendium of investment data devoid of minus signs.
The funds on the list, which include a pair of institutional and a trio of retail funds that invest in Treasury instruments, have provided more than just safety to investors. The retail Treasury bond funds --
Wasatch Hoisington U.S. Treasury Fund
American Century Target Maturity-2025
Dreyfus U.S. Treasury Long Term Fund
-- have rewarded holders with total returns hugging the 10% range over the past 12 months. The institutional
PIMCO Extended Duration Fund
has enriched its investors by 15.4% over the same period.
Vanguard Extended Term Treasury Index Fund
, which checked into the world on Sept. 20, 2007 and therefore hasn't yet tallied a 12-month record, has returned 7.8% over the past three months.
While Treasury securities represent the ultimate in safety, as only that agency has the authority to print money to cover its debts if all else fails, investor discretion is required on selecting an optimal "term" for Treasury funds. The funds in the table below enjoyed appreciation of principal value, because interest rates declined over the past year. But if long-term rates reverse course and move higher, the principal returns on these funds will turn negative. In that case, shorter-maturity Treasury funds would turn out to be less risky investments.
Richard Widows is a senior financial analyst for TheStreet.com Ratings. Prior to joining TheStreet.com, Widows was senior product manager for quantitative analytics at Thomson Financial. After receiving an M.B.A. from Santa Clara University in California, his career included development of investment information systems at data firms, including the Lipper division of Reuters. His international experience includes assignments in the U.K. and East Asia.