Fund Spy

Which Bond Funds Are Pulling Up the Rear in 2008?

Paul Herbert, CFA

It has been a tricky year so far in 2008 for bond-fund investors. The credit crunch has continued to play out, policy makers and risk takers have fuelled rallies and Cassandras have stalled them. Last week, my colleague Scott Berry examined some managers who have been navigating this environment well. I thought I'd turn his article on its head and look at some of those who have been struggling through the year's first half. In some cases, these funds remain very strong options that have just hit a rough patch, while in other instances the crunch has exposed funds' inherent flaws.

To assemble a reasonably sized list of the downtrodden, I screened for fixed-income mutual funds that have been among their respective Morningstar categories' worst 10% from Jan. 1 to June 30. To keep the results relevant for more readers, I eliminated funds with asset bases below $500 million. The process yielded 44 funds, and I'll discuss a handful of the larger and more prominent ones in more detail below.

Paul Herbert, CFA does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.