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Finding Flexible Bond Funds That Earn Their Keep

We screen for fixed-income offerings that have made the most of a flexible investment strategy.

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With the looming threat of inflation and rising rates hanging over fixed income, bond funds that have more flexibility to add value while avoiding trouble spots are quickly gaining investor attention. The major distinction of these funds--typically found in the multisector bond category--is that they have the latitude to invest across a wider range of fixed-income securities, potentially including domestic and foreign issues, and bonds from across the quality and maturity spectrum.

For that reason, such funds' composition might change from one quarter to the next, making them less predictable than the standard core fund. This might be especially true of the so-called unconstrained multisector bond funds, a name that is typically used to describe portfolios that can invest both long and short in the bonds and derivatives of nearly any fixed-income sector and have wide limits on their weightings and management of interest-rate sensitivity.

When any fund offers management more latitude, it's important for investors to make sure they're comfortable with the manager's skill level and experience and to understand the actual parameters the fund is operating within (just how far afield can it go?). In addition, investors seeking more predictable portfolios will likely want to keep such funds as supporting (versus core) players, given their changing portfolio profiles.  

Esther Pak does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.