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Five Government-Bond Funds That Have Held Up

Plus, BlackRock stalks BGI and iShares, Fidelity offers access to IPOs, and Vanguard tweaks money market lineup.

Morningstar Analysts, 06/15/2009

Morningstar's fund analysts cover 2,000 mutual funds. Their full analyst reports, including Stewardship Grades, are available in Morningstar Principia Mutual Funds Advanced and Morningstar Advisor Workstation Office Edition.

Government-bond funds, one of the only safe havens in the market meltdown of 2008, have taken it on the chin this year as the recent market rally has brought back investors' appetite for risk. Long-term government-bond funds, a notoriously volatile bunch, are down more than 19% in the year to date through June 10, 2009. Intermediate-term government-bond funds have fared better, losing just 0.32%, while short-term funds have eked out a 0.63% gain. Those returns pale in comparison to the S&P 500, which is up more than 5% for the year.

Not all government-bond funds are struggling, though. In fact, some funds have seen a reversal of fortune, catapulting from the bottom of the group to the top. Leading the pack are intermediate-term funds Putnam U.S. Government Income PGSIX and Putnam American Government Income PAGVX. Both funds tanked in 2008 because of nongovernment exposure and an aggressive approach that included leverage, but they're up 12.75% and 9.04%, respectively, in the year to date through June 10, 2009.

Several short-term government-bond funds have held their own, including Wells Fargo Advantage Short Duration Government Bond MNSGX and Sit U.S. Government Securities SNGVX, which led the way with gains of 4.04% and 3.59%, respectively.

Predictably, most long-dated government funds have gotten trounced and are facing losses. PIMCO Real Return Asset PRAIX is the lone long-term fund in the black, up 2.81% so far in 2009.

Many of the funds that have looked the best so far in 2009 still have a lot of ground to make up, though, as they try to recover from 2008's losses. It's also worth noting that many of this year's leaders aren't your typical plain-vanilla government-bond funds. In many cases, they're following aggressive strategies that are significantly different from their peers. That may pay off now, but it's important to consider the added layer of risk.

BlackRock Nearing Deal with Barclays
It's been widely reported that BlackRock is closing in on a deal with indexing company Barclays Global Investors. According to The Wall Street Journal, the acquisition is expected to boost BlackRock's assets under management by $1.5 trillion, which would make it the largest asset-management firm, with an estimated $2.8 trillion in assets. The potential deal is the latest in a string of moves that have helped BlackRock expand its lineup. It previously bought SSRM Holdings--owner of State Street Research & Management--and Quellos Group LLC. Most notably, it merged with Merrill Lynch Investment Managers in 2006.

Fidelity Fodder
Fidelity announced a deal on June 8 that gives retail and institutional brokerage clients access to alternative asset manager KKR's initial public offerings. KKR, which has $35 billion in private equity and $12 billion in credit assets under management, will act as underwriter for all securities, giving the firm a new distribution channel.

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