Investing Strategies to help protect your bond portfolio Tulsa World Tulsa World Tulsa News
Post on: 14 Июль, 2015 No Comment
Posted: Monday, March 9, 2015 5:25 am
Most observers expect the Federal Reserve to raise short-term rates, probably in the second half of the year. But the Fed may delay the decision because of the strong dollar, which is attracting foreign investors and propping up bond prices (which move in the opposite direction of yields).
Plus, plunging oil prices should help keep inflation, the biggest enemy of bond investors, at bay. Take these factors, and you do not have a recipe for rising rates, says Jeffrey Gundlach, CEO and chief investment officer of DoubleLine Capital.
So what can you do to protect your bond portfolio? Build a mix that straddles the fence between the odd chance that rates will stay lower longer than the world anticipates and the possibility that rates will rise, albeit slowly.
We suggest you start with an intermediate-term bond fund.
In almost all markets, a diversified, medium-maturity fund should be at the core of your bond portfolio. Fidelity Total Bond (symbol FTBFX, 2.9 percent yield) holds corporate debt (including a smattering of junk issues), bank loans, mortgage-backed securities and some foreign bonds that are hedged against further strengthening of the dollar. The fund’s four managers focus on understanding the big picture as much as they do on choosing the right securities.
London-based co-manager Michael Foggin has been tapped to identify attractive corporate bonds in Europe and Asia. Over the past 10 years, Total Bond, a member of the Kiplinger 25 (our favorite no-load mutual funds), returned 5.1 percent annualized, beating its benchmark, the Barclays U.S. Aggregate Bond index, by an average of 0.4 percentage point per year. The fund’s average duration is five years, suggesting that its price would decline by roughly 5 percent if rates on intermediate-maturity bonds were to rise by 1 percentage point.
DoubleLine Total Return Bond (DLTNX, 3.7 percent), which specializes in mortgage-backed securities, isn’t as diversified as the Fidelity fund, but its unusual strategy has consistently delivered good returns. Gundlach, the fund’s manager, employs a barbell strategy: He balances government agency bonds, which carry no default risk but a lot of interest-rate risk, with nonagency mortgage-backed bonds, which have little interest-rate risk but a lot of default risk.
The result is a fund that delivered an annualized 5.0-percent return over the past three years, beating the typical taxable, intermediate-maturity fund by 1.5 percentage points per year while being 10 percent less volatile than its average peer. Its average duration is three years.
Nellie S. Eluang is a senior associate editor at Kiplinger’s Personal Finance magazine.
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