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Fund Spy: Morningstar Medalist Edition

A Look at a Promising but Still Untested Fund

BlackRock Global Long/Short Credit has an interesting strategy, but it is not battle-tested.

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 BlackRock Global Long/Short Credit's (BGCAX) duration-neutral strategy could help navigate a rising interest-rate environment, but it is still too soon to tell.

This relatively new fund differs from most non-traditional-bond funds in that its strategy is duration-neutral. Many funds in the category have the ability to hedge out interest-rate risk, but most have not, because owning duration has been a winning bet since 2008--that is, until recently. In May 2013, 10-year Treasury yields climbed to 2.16% from 1.63% just a month earlier. While the average fund in the category experienced losses (0.4%), this fund was up slightly (0.2%). Its credit-risk-management strategy also may set it apart. Managers Michael Phelps and Josh Tarnow test the portfolio daily to minimize losses in the event of a 10% credit spread widening. All told, the fund has had only two small negative monthly returns since inception, during credit sell-offs in November 2011 and May 2012.

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