NEW YORK (FMD Capital Management) -- Bond funds were largely written off in 2013 as tens of billions poured out of these stalwart dividend vehicles last year. Fears over rising interest rates helped to put downward pressure on fixed-income and aggregate bond indexes realized their worst year in nearly a decade. Speculation over the Federal Reserve tapering its quantitative easing efforts only added fuel to the inflationary debate as well.
However, the combination of weakening economic data and stock market volatility has led to resurgence in bonds this year that should be a wake-up call for income investors. The realization that tapering has not led to a significant rise in interest rates should be another red flag that bonds aren't as dangerous as they have been made to seem.
Many performance chasing portfolios are now overweight stocks and underweight bonds which could spell disaster if the market continues to show signs of weakening. The following five funds represent actively managed fixed-income strategies that offer the opportunity for capital appreciation and solid dividend streams this year.
PIimco Income Fund
Despite the looming threat of higher interest rates, I am still continuing to look for opportunities in fixed-income that are designed to maximize income while focusing on risk management. An actively managed mutual fund that is one of my favorite core holdings is the PIMCO Income Fund (PONDX), which is managed by Dan Ivascyn.
Coincidentally, Ivascyn was just recently named the 2013 Bond Fund manager of the year by Morningstar and was promoted to deputy CIO at Pimco. He has a long track record of spotting early trends and capitalizing on security selection through this research.
PONDX takes a multi-sector approach to specific areas of the bond market that the manager feels will outperform over time. They have done a fantastic job of managing interest rate risk in 2013 and taking advantage of opportunities (both inside and outside the U.S.) when they are available. This has led to 2013 returns of better than 4.5%, an effective duration of less than 5 years, and a current 30-day SEC yield of nearly 4%.