Video Reports

Embed this video

Copy Code

Link to this video

Get LinkEmbedLicenseRecommend (-)Print
Bookmark and Share

By Christine Benz | 10-06-2011 12:00 AM

No Guardrails for Unconstrained Bond Funds

Given these funds' wide latitude, investors should move slowly (if they move at all) into these offerings at this point, says Morningstar's Eric Jacobson.

Christine Benz: Hi. I'm Christine Benz for

So-called "unconstrained bond funds" have some of the fund world's biggest asset gatherers over the past year. Here to discuss what these funds are, how to evaluate them, and whether you need one is Eric Jacobson. He is director of fixed-income research for Morningstar.

Eric, thank you so much for being here.

Eric Jacobson: Good to be here. Thank you for having me.

Benz: So, Eric, it seems like in a really confusing fixed-income environment, a lot of investors have flocked to this unconstrained bond funds as sort of a way to span the waterfront in fixed income. What are these funds and what are they investing in?

Jacobson: Well, as you know, a lot of them were hatched in a time period leading up to this year, where there was a lot of fear about rising interest rates. So, really, what they are at the core, regardless of what a lot of the marketing material says, is, they are a way for fund companies generally to offer something that looks a little bit like a core, or multi-sector bond fund, but without much interest rate sensitivity. What I've just said sort of boils it down. You are not going to often hear that from certain companies depending on how they're trying to market them, but that's kind of what you are getting in a lot of cases.

There are different flavors, though. Some of them are much more like core bond funds. They've got a lot of different sectors in them, but they are using things to keep interest-rate sensitivity low. Others are a little bit more sector focused, despite the names and so forth. And that right now, for example, would describe this JPMorgan Strategic Income Opportunities Fund, which has been really popular. It has a lot of high-yield exposure in it.

But by and large, they are either, like I said, very little interest sensitivity, lots of ability to go anywhere, in terms of sectors...

Benz: So, global as well as, just U.S. focused?

Jacobson: Absolutely. And a lot of them also, because of what I just described, even though they were originally sort of conceived as unconstrained, a lot of them tend to overlap with what you might call "absolute return bond funds"--the idea being that they want to try and make money in almost any environment, a lot easier said than done.

Read Full Transcript
{0}-{1} of {2} Comments
{0}-{1} of {2} Comment
  • This post has been reported.
  • Comment removed for violation of Terms of Use ({0})
    Please create a username to comment on this article