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3 Core Bond Funds to Take the Sting Out of a Bear Market

3 Core Bond Funds to Take the Sting Out of a Bear Market

Russel Kinnel: It's worth the time to do your research on bond funds.

Almost everyone needs a core bond fund. If you are a younger investor, it's a handy diversifier that will take some of the sting out of bear markets. If you are retired, a core bond fund is a vital source of income that only takes on modest risk to get that yield.

I’ll share three great options for you to consider.

3 Great Core Bond Funds

These funds earned a Morningstar Analyst Rating of Gold.

  1. Baird Aggregate Bond BAGIX
  2. Dodge & Cox Income DODIX
  3. Vanguard Tax-Exempt Bond VTEAX

Baird Aggregate Bond BAGIX is a Gold-rated fund led by Mary Ellen Stanek. Stanek and her team do a great job of taking a number of small bets that enable the fund to outperform without taking on much risk. The fund's been a very consistent performer thanks to manager skill and low fees.

Dodge & Cox Income DODIX is a Gold-rated fund in our core-plus category. Core-plus funds tend to take on more risk in credit, sectors, and duration. In this case, the risk comes on the credit side. The fund leverages equity research to find good investment-grade corporate bonds, and it generally gets rewarded for taking on those risks.

If you are investing in a taxable account, you should consider a municipal-bond fund so that your income is tax-free. Vanguard Tax-Exempt Bond VTEAX tracks a broad index with an emphasis on liquidity. It charges just 9 basis points, so that nearly all the portfolio income goes straight to investors. We rate the fund Gold.

Watch 3 Low-Volatility Funds in the Zone from Russel Kinnel.

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About the Author

Russel Kinnel

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Russel Kinnel is director of ratings, manager research, for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He heads the North American Medalist Rating Committee, which vets the Morningstar Medalist Rating™ for funds. He is the editor of Morningstar FundInvestor, a monthly newsletter, and has published a number of prominent studies of the fund industry covering subjects such as manager investment, expenses, and investor returns.

Since joining Morningstar in 1994, Kinnel has analyzed virtually every type of fund and has covered the most prominent fund families, including Fidelity, T. Rowe Price, and Vanguard. He has led studies on the predictive power of fund data and helped develop the Morningstar Rating for funds and the Morningstar Style Box methodology. He was co-author of the company's first book, Morningstar Guide to Mutual Funds: 5-Star Strategies for Success (Wiley, 2003), and was author of the book Fund Spy: Morningstar's Inside Secrets to Selecting Mutual Funds That Outperform, published in 2009.

Kinnel holds a bachelor's degree in economics and journalism from the University of Wisconsin.

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