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Fund Spy

Five Bond Nuggets for the Fall Season

A few thoughts before taking an autumn rake to your bond portfolio.

1) Your Benchmark Is Worthless.
Well, maybe not if you're talking about niches like Ginnie Mae or Treasury funds, but when it comes to your core bond portfolio, the Barclays Capital (nee Lehman Brothers) U.S. Aggregate Bond Index just isn't going to do you much good. And for that matter, it hasn't been much use during the past couple of years, either. The index crushed most intermediate-term bond funds (the natural home of core bond offerings) in 2008, and it's choking on the dust of more than 90% of them so far in 2009. For one, the index has 19% in corporate bonds, while more than 80% of intermediate-term bond funds--most of which use "the Agg" as their official bogy--hold more than that. And now that Uncle Sam is backing Fannie Mae and Freddie Mac, that 19% corporate weighting and a sliver of securitized bonds are just about the only nongovernment exposure left in the index. So, a fund hoping to provide any diversification is understandably going to try to look different from that index, and most have long held bits of high-yield, nondollar, and securitized assets that are in one way or another absent or underrepresented in the benchmark.