Loomis Sayles Investment Grade Bond Fund ( LSIIX), which is top-rated by Morningstar with five stars, is a good all-around bet for investors seeking a conservative bond allocation. It has gained 1.5% this year, 10.5% over the past year, and has a three-year average return of 7.7% -- and that was through some rough and rocky times. The fund, with $4.4 billion in assets, invests at least 80% of total assets in investment-grade fixed-income securities and can invest up to 10% of the fund in higher-yielding, lower-rated securities. The fund may invest up to 20% of total assets in foreign securities, including emerging-markets securities. It doesn't hold any equities. Among its largest holdings are government bonds from Canada, New Zealand and Norway and corporate bonds from Intel ( INTC) and Deutsche Telekom ( DT).
Fidelity Strategic Real Return Fund ( FSRRX), a broad market bond fund, gained 17% in the 12-month period through the end of February. It's up 2.8% this year. Morningstar, which categorizes it as a "conservative allocation" fund, gives it a three-star rating out of a possible five. The $4.2 billion fund is a mix of about 30% inflation-protected debt securities, 25% floating-rate loans, 25% commodity-linked notes, 20% real estate investment trusts (REITs) and other real-estate-related investments. A Morningstar analyst says the fund's diversified portfolio, which includes a heavy reliance on U.S. Treasury Inflation-Protected Securities and floating-rate loans, "makes it an intriguing option for fighting inflation."
The $9 billion Oppenheimer Global Strategic Fund ( OPSIX), which gets two stars from Morningstar, is a multi-sector bond fund that divides the fund's assets among U.S. government, high-yield and foreign debt, including emerging-markets issues. It has a 1.76% return this year and 15% over the past year. The fund also uses derivatives for investment purposes or hedging, including options, futures, forward contracts, swaps and "structured" notes. Top 10 holdings includes sovereign bonds from Poland, Turkey, Brazil, Japan and South Africa.