Premium Fund Selector: How to Be a Bond Fund Snob
It pays to be picky.
For many investors this year, the customary "flight to quality" that often accompanies market downturns hasn't meant making additional investments in their core equity holdings. With stock market averages in the gutter for a third consecutive year, plenty of folks have sought the relatively peaceful, easy feeling that comes with investing in bond funds.
And why not? It's true, of course, that over the long haul, bond funds have lost out to their equity counterparts. Nonetheless, for the trailing three- and five-year periods ended September 30, 2002, investors in the average bond fund have eked out modest gains while shareholders in the average domestic equity fund have suffered losses. In a recent investment-outlook piece, a gloating Bill Gross assessed the state of the stock market in typically provocative fashion: "[S]tocks stink," wrote PIMCO's guru of bond investing, "and will continue to do so until they're priced appropriately."
What's appropriate is a tough call, of course, and for investors with long time horizons, equities remain the place to be. Simply put, no other investment vehicle has delivered as much bang for the long-term buck. Moreover, like the stock market, the bond market is also susceptible to "irrational exuberance".
Still, bond funds certainly have their place in the average investor's portfolio. And for investors with little risk tolerance--such as those approaching retirement or saving for a near-term goal such as a house or a college education--that place may be quite large. As with equity funds, however, the tough part is sorting through the myriad choices and finding a quality fund that meets your needs. The good news is that the Premium Fund Selector can help you do just that.
Let's say you're a fairly conservative investor who's interested in a topnotch bond fund that won't keep you up at night. A superior risk/return profile is essential, and you'd like below-average exposure to interest rate fluctuations (i.e., duration). As a savvy investor, you know that managerial tenure and expenses are key factors in picking a quality fund, and thus you'd like a relatively cheap offering with a team that's been on the case for a substantial length of time. Finally, you want a fund that's fairly cautious in its approach to the credit markets, one that favors higher-rated debt issues.
That's a pretty stringent set of requirements, but devising a screen for it with the selector could hardly be simpler. Using the tool's drop-down menu and dialogue boxes, assemble the following search criteria:
(Fund Category = Intermediate-Term Bond)
and (Fixed-Income Style Box = High-Quality)
and (Overall Morningstar Star Rating >= 4)
and (Average Duration < Category average)
and (Fund Manager Tenure >= 10)
and (Expense Ratio <= Category average)
and (Closed to New Investment = No)
and (Minimum Initial Purchase <= 10000)
and (Distinct Portfolio Only = Yes)
Click here to run this screen automatically.
Boy are you picky. Of the more than 650 funds that land in the intermediate-term bond category, a mere three made it through your screen. One's even managed by--you guessed it--the inimitable Bill Gross.
For more information about how to build your own screens, click here.