Home>Video>'No Income' No Reason to Ditch Core Bonds

'No Income' No Reason to Ditch Core Bonds

Fri, 11 Apr 2014

As bond-fund returns are expected to stay volatile, high-quality intermediate bonds provide greater portfolio stability than higher-yielding, nontraditional bonds.

+

Video Transcript

The Morningstar Minute is our quick take on investments, the market, economic indicators, and more. Join us every day for fresh insights from our analyst team.

Mike Rawson: After several years of favoring bond funds over stock funds, investors rotated out of bond funds in 2013 as the Federal Reserve started to reduce its asset-purchase programs. Since then, interest rates have risen to about 2.7% and the performance of intermediate-term bond funds has suffered because of that. Last year, the average intermediate-term bond fund was down about 1.5%.

So far in 2014, selling of core bond funds has slowed. In fact, in March, the intermediate-term bond category had its first month of inflows in 11 months. To reduce interest-rate risk, investors have put money into short-term bond funds, but some investors have added money to noncore bond funds, as well. Noncore bond funds may have less exposure to interest-rate risk, but it's also likely that they have exposure to other risk factors such as equity market risk.

With uncertainty over the future course of interest rates, it's likely that bond-fund returns are going to be more volatile in the future. It's important to remember the two reasons why investors hold bonds in their portfolio; one, reason is for income and the other reason is for stability in your portfolio. While investors may not be getting much income out of high-quality bonds,, high-quality bonds are likely to provide greater stability to your portfolio than non-traditional bonds and bond funds. 

  1. Related Videos
  2. Related Articles
  3. Comments
  1. Ready Your Portfolio for Retirement

    Morningstar's Christine Benz demonstrates how to make a bucket portfolio best work for you, touching on allocation, RMDs, other income sources, and more.

  2. Picks and Strategies to Navigate Today's Market

    Roundtable report: Morningstar strategists offer up their best ideas for a fully valued, low-yield market with few attractive choices.

  3. Hitting Singles off the Yield Curve

    Instead of outguessing short-term interest rate moves, fund shop Baird looks to add value on yield curve positioning, individual security selection, and sector allocation, and is currently finding opportunities in corporates.

  4. Investors Continue to Take on Credit Risk

    September and third-quarter asset-flows data show that investors remain cautious of interest - rate risk and a fully valued stock market, and instead prefer nontraditional bonds and foreign equities.

  5. Fund Flows: 2013's Biggest Winners and Losers

    Passive equity funds, noncore bonds , alternatives, and many of the fund shops that sell them fared well last year, while core bonds , commodities, and gold suffered.

  6. 4 Hidden Risk Factors in Bond Funds Today

    Investors should dig into their bond portfolios to understand all the places their managers are hunting for yield, says Morningstar's Eric Jacobson.

  7. Rising-Rate Concerns Push Investors to Noncore Assets

    May flows data show investors are putting money to work in nontraditional fixed-income holdings, as well as emerging-markets equities, for perceived better returns.

  8. Rising-Rate Concerns Push Investors to Noncore Assets

    May flows data show investors are putting money to work in nontraditional fixed-income holdings, as well as emerging-markets equities, for perceived better returns.

blog comments powered by Disqus
Upcoming Events
Conferences
Webinars

©2014 Morningstar Advisor. All right reserved.