Has Your Bond Fund Been Acting Like One?

One of the reasons for owning bond funds is diversification from equities, so we thought we'd look for bond funds that move in sync with stocks.

These funds have their merits, but they offer less diversification than the typical bond fund. U.S. high yield, emerging-markets bonds, and bank loans have been the most highly correlated with the S&P 500 during the past three and five years, so funds that invest in these sectors, even at the periphery, may not offer the stability many investors seek.

Its management team has made full use of those allocations at times, which has caused the fund to lose money when the S&P slides such as 2011's rocky third quarter and in the commodity-driven sell-off from mid-2015 to early 2016. Loomis Sayles Investment Grade Bond can own less than one third as much as its sibling in high yield and common stock, but the team's penchant for bargain-hunting in sell-offs has also caused it to lose money during challenging markets.

Multisector-bond funds

On a related note,

These aggressive bond funds are great long-term investments, but they won't provide traditional fixed-income ballast. Instead, consider bond funds that carry more consistent stakes in Treasuries, mortgages (both agencies and nonagencies), and asset-backed securities, all areas that have been negatively correlated to equities over time.