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Multisector funds are an interesting lot. Found in the
Specialty Bond section of
FundInvestor
’s data pages,
they are wide-ranging aggressive funds. They differ
from the core bond Morningstar Category of interme-
diate bond by having
35%
–
65%
in below-investment-
grade debt. They also tend to invest more overseas.
Most have the flexibility to move around quite a bit,
and the better ones put that flexibility to good use.
Because it’s in the same specialty bin and for
contrast, I’ll also look at
Vanguard Convertible
Securities
VCVSX
.
PIMCO Income
PONDX
Dan Ivascyn has made this a bright spot amid all the
Bill Gross controversy. The fund continues to perform
brilliantly, and investors continue to send money
Ivascyn’s way even as they redeem their shares of
PIMCO Total Return
PTTRX
. The fund is in its
peer group’s top
5%
over the trailing three- and five-
year periods thanks to some very bold moves.
Most important, the fund has about
40%
of assets
in nonagency mortgages. These are mortgages
without government backing that carry higher yields
and much more risk. So far, Ivascyn’s aggression
has handsomely rewarded shareholders. The fund
lost a mere
5
.
8%
in
2008
, but clearly there’s potential
for the fund to get smacked much harder in the
next downturn.
Loomis Sayles Bond
LSBRX
Dan Fuss and team are also enjoying quite a roll; the
fund has top-quartile returns over the past three-,
five-, and
10
-year periods. Fuss is taking on quite a bit
of risk here, though it’s more in the form of high-
yield corporate bonds and foreign debt. Interestingly,
management has been boosting its high-yield expo-
sure and short-term Treasury exposure because it is
generally cautious but felt the early-
2015
energy
sell-off was overdone. That looks like a good call, but
a
30%
weighting in nondollar bonds has hurt the fund
so far in
2015
. The fund lost a hefty
22
.
1%
in
2008
,
so you know the downside is serious. Meantime, the
fund is making a gradual transition in which coman-
agers Matthew Eagan and Elaine Stokes ramp up
their responsibilities.
T. Rowe Price Spectrum Income
RPSIX
This fund is modestly ahead of peers for the trailing
three-year period but only in line with the category for
the past five years. Charles Shriver tactially allocates
assets among
13
T. Rowe bond funds plus
T. Rowe
Price Equity Income
PRFDX
. It’s that last bit,
a neutral
12%
equity weighting, that makes this fund
a little different from peers, though a little like
Vanguard Convertible Securities, which is also influ-
enced by the equity market. The fund lost
9
.
4%
in
2008
.
Fidelity Strategic Income
FSICX
The fund has been in the middle of the pack under
Joanna Bewick for the past three- and five-year
periods, but its longer-term results are strong. Unlike
its peers, this fund doesn’t have much flexibility.
The fund’s neutral weighting is
40%
high yield
(including leveraged bank loans),
30%
U.S. govern-
ment debt (recently split
75%
Treasuries/
25%
mortgages),
15%
emerging markets, and
15%
foreign
developed markets. The fund lost
11
.
4%
in
2008
.
Vanguard Convertible Securities
VCVSX
Run by the venerable Oaktree Capital Management,
this is an appealing fund. Its three-year returns of
11
.
56%
annualized are well ahead of those seen in the
multisector category, but that’s because convertible
bonds behave like a mix of bonds and equities. Rela-
tive to other convertible funds, this fund has been
a laggard in recent years because of its emphasis on
foreign convertibles. However, strong management
and a great long-term track record make this a worthy
choice. The fund lost
29
.
8%
in
2008
, thus illustrating
the downside of that equity exposure.
K
Our Favorite Wide-Ranging Aggressive
Bond Funds
Tracking Morningstar Analyst Ratings
|
Russel Kinnel
What Are Morningstar
Analyst Ratings?
Our ratings are chosen for long-
term success. Analysts assess
a fund’s competitive advantages
by analyzing people, process,
parent, performance, and price.
They do rigorous analysis and
then submit their ratings to a
committee that vets their work
for thoroughness and consistency.