Bond Fund Analysis by Sam Patel

The top 10 list of bond funds for the month of January 2008 shows the state of the economy, with the Treasury market rallying on the short end following the slashing of rates by the Federal Reserve. This helped boost returns of Tax Free Money Market Funds, which accounted for the majority of funds in our list.

Fund Name Ticker 1 Month Return 1 Year Return 3 Year Return Category
Evergreen Inst US Govt MM Inv EGNXX 0.33 4.75 4.19 Tax Free Money Market
US Govt Securities Savings Fund UGSXX 0.3 4.58 4.02 Tax Free Money Market
UMB Scout Federal Money Market Inv UMFXX 0.3 4.52 3.96 Tax Free Money Market
Colorado Bond Shares Tax-Exempt A HICOX 0.84 5.71 5.55 Municipal - Single State
Calvert Social Invest MM Cl O CSIXX 0.3 4.53 4.13 Tax Free Money Market
Monetta Trust-Govt Money Market MONXX 0.33 4.75 4.01 Tax Free Money Market
Fidelity Treasury Capital Reserves FSRXX 0.21 3.92 3.52 Tax Free Money Market
Vanguard Lmtd-Term Tax-Exempt Inv VMLTX 1.69 6.06 3.52 Municipal - National
Federated Money Market Mgt Eagle Sh MMMXX 0.36 4.36 3.55 Tax Free Money Market
Vanguard Short-Term Tax-Exempt Inv VWSTX 1.11 5.12 3.39 Municipal - National

(All funds above carry a TSC rating of A+.)

In short, money came off the table as fear and risk gripped the market.

The table below shows Loan Participation Funds dominated the list in January 2007 but with the gradual unwinding of the subprime issues, and the instability of debt market in general, investors responded by moving to the other end of the risk spectrum in 2008 and embracing money market funds.

Loan Participation funds invest predominantly in bank loans made to low credit rated companies. This is a higher risk situation that attracts a higher return. Investors were very keen on these funds back in 2007 when the economy and the debt markets were significantly more stable and risk and fear were nowhere to be seen. One year later, and there has been a complete reversal in risk appetite.

Fund Name Ticker Category
Highland Floating Rate Advantage A XSFRX Loan Participation
Colorado Bond Shares Tax-Exempt A HICOX Municipal - Single State
Highland Floating Rate Fund A XLFAX Loan Participation
Evergreen FL High Income Muni I EFHYX Municipal - Single State
Oppenheimer Sen-Floating Rate C XOSCX Loan Participation
Van Kampen Senior Loan Fund IC XSLCX Loan Participation
Morgan Stanley Prime Inc Trust XPITX Loan Participation
Van Kampen Senior Loan Fund IB XPRTX Loan Participation
Evergreen Inst US Govt MM Inv EGNXX Tax Free Money Market
Eaton Vance Sr Floating-Rate Inst EIFRX Loan Participation

Stock Fund Analysis by Kevin Baker

As of Jan. 31, the top-rated open-end stock fund this month is the Permanent Portfolio Fund ( PRPFX). The fund's stated objective is to preserve long-term purchasing power with a portfolio of gold, silver and Swiss francs as well as natural resource companies.

This is just the type of portfolio you would expect to do well in these jittery times. Below are the other funds making our top 10 list.

The second-place fund, Ivy Asset Strategy Fund ( WASAX), hit the right mix of sectors with 11.3% mining, 10.9% diversified financial services, 9.4% telecommunications, 5/9% oil and gas, 5.4% alternative energy sources and 4.4% agriculture.

This past year was the right time to be long a global portfolio of fund holdings such as Monsanto ( MON) up 120.43%, Rio Tinto ( RTP) up 103.59%, Nintendo ( NTDOY) up 69.13%, Transocean ( RIG) up 68.41% and Sunpower ( SPWR) up 48.85%.

The PIMCO All Asset All Authority A Fund ( PAUAX) is included in the list of stock funds, even though it has only about one-third of 1% invested directly in equities, because it's a fund of PIMCO funds, some of which are PIMCO StockPlus funds that track various international equity indices with the use of derivative securities.

Finally, it is notable that a contrarian fund such as the Prudent Bear Fund ( BEARX) managed to climb into the top 10 by selling short equities securities.

The fund does bet on some stocks going up, mostly Canadian mining shares. Over the last 12 months, holdings such as Canplats Resources ( CPQRF) soared 614%, Duran Ventures ( DUVNF) leaped 391% and East Asia Minerals ( EAIAF) popped 292%.

Fund (Ticker) Rating Total Return 3 Year Total Return 1 Year Total Return 1 Month Investment Objective
Permanent Portfolio Fund (PRPFX) A+ 13.09% 13.53% 2.64% Asset Allocation - Domestic
Ivy Fund-Asset Strategy A (WASAX) A+ 26.80% 35.86% -2.41% Asset Allocation - Domestic
Pinnacle Value Fund (PVFIX) A+ 11.34% 8.16% -2.70% Growth - Domestic
J Hancock Balanced A (SVBAX) A+ 16.15% 18.24% -3.00% Balanced - Domestic
PIMCO All Asset All Authority A (PAUAX) A+ 7.34% 13.19% 3.10% Asset Allocation - Domestic
BB&T Equity Income A (BAEIX) A+ 13.58% 4.92% -2.07% Equity Income
Prudent Bear Fd (BEARX) A+ 9.07% 17.78% 2.39% Growth - Domestic
BlackRock Glb Allocation Inv A (MDLOX) A+ 14.12% 14.14% -1.72% Asset Allocation - Global
Fidelity Adv Consumer Staples A (FDAGX) A+ 12.91% 10.73% -6.00% Growth - Domestic
AllianceBern Utility Income A (AUIAX) A+ 18.30% 13.89% -5.72% Sector Fund - Utility

Source: Ratings - Jan. 31, 2008 Data.
Read this for an explanation of our ratings, click here.

ETF Analysis by Richard Widows

With the domestic equity markets sagging, the economy stagnating and the ever-deepening credit crunch eroding whatever faith remains in the U.S. dollar, an eclectic group of exchange-traded funds emerged as the highest ranked in that investment category by Ratings.

While fixed-income funds comprise only a small fraction of exchange-traded funds, four bond offerings populate the accompanying list of the 10 highest rated ETFs. They represent the conservative extreme of the list, as two invest in Treasury securities and two in a combination of government notes and higher-rated corporate debt.

The persistent weakness in the U.S. dollar, combined with lofty commodity prices, propelled two precious-metals funds to the top ratings roster. One focuses solely on gold while the PowerShares DB Precious Metals Fund ( DBP) invests 80% in gold futures and 20% in forward silver contracts.

The sinking dollar lifted two currency funds into the top 10. Investor uneasiness about the greenback are especially reflected in the strength of the Currency Shares Swiss Franc Trust ( FXF), which places its assets in what has traditionally been among the strongest and most stable currencies around.

Topping out the 10 highest rated ETFs are two "inverse" funds, each "short" a popular small-cap stock index.

The pair of precious-metals funds on the list, along with the two inverse small-cap ETFs, have each enjoyed double-digit gains during the most recent three calendar months, a period when the general stock market has moved relentlessly downhill.

CurrencyShares Euro Trust (FXE) A+ Currency 2.23 3.71 17.90
CurrencyShares Swiss Franc Trust (FXF) A+ Currency 4.83 7.55 16.49
iShares Lehman 10-20 Yr Treasury Bd (TLH) A+ Government Bond 2.76 6.34 13.74
iShares Lehman 3-7 Year Treasury Bd (IEI) A+ Government Bond 2.93 6.65 13.45
iShares Lehman Govt/Credit Bond (GBF) A+ General Bd - Investment Grade 2.38 4.36 9.84
iShares Lehman Intrm Govt/Crdt Bond (GVI) A+ General Bd - Investment Grade 2.04 4.60 9.94
PowerShares DB Gold Fund (DGL) A+ Sector - Precious Metals 9.97 15.33 37.46
PowerShares DB Precious Metals Fund (DBP) A+ Sector - Precious Metals 10.59 15.26 34.02
ProShares Short Russell 2000 (RWM) A+ Growth - Domestic (Inverse) 7.10 15.35 15.26
ProShares Short S&P Small Cap 600 (SBB) A+ Growth - Domestic (Inverse) 5.88 14.82 12.54
Source: Ratings - Data as of 1/31/2007.

This article was written by staff members of Ratings.

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