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3 Bond Funds to Watch

These three bond funds added to Morningstar Prospects may someday come under full coverage.

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Morningstar Prospects is a list of up-and-coming or under-the-radar investment strategies that Morningstar Manager Research may someday bring under full coverage. We recently added a trio of new bond funds to the list.

American Funds Strategic Bond (ANBAX) adopts an approach that majors in rates and minors in credit, which sets it apart from more credit-heavy peers in the intermediate core-plus Morningstar Category. The fund aims to derive 60% of excess returns from duration and yield-curve positioning, with the remainder coming from sector and security selection. As such, the strategy’s duration, a measure of interest-rate sensitivity, can whip around and has been as much as four years longer or shorter than its benchmark over the past two years. The managers aim to limit the strategy’s correlation to equities and typically tilt the portfolio toward the most liquid sectors of the bond markets, such as government debt and investment-grade corporate credit. Execution of this rates-focused approach has been strong. The strategy has often outperformed in both credit and rates stress periods, including during 2020’s first-quarter coronavirus sell-off.

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