Need a New Year's Rebalance? These 3 Bond Funds Can Help
Look to these Morningstar favorites if surging markets have knocked your portfolio's mix off course.
Susan Dziubinski: Hi. I'm Susan Dziubinski from Morningstar.com. After enjoying a surging U.S. stock market performance in 2019, investors may find that their stock-bond mix has gotten out of whack. Here are three of our favorite bond funds for restoring balance in the new year.
Brian Moriarty: Metropolitan West Total Return Bond Fund is one of our favorite funds for filling out the fixed-income allocation in an investor's portfolio. The fund is run by four impressive managers: Tad Rivelle, Laird Landmann, Steve Kane, and Bryan Whalen, three of whom have been on the fund since its 1997 inception. The managers are supported by a large experienced group of specialists, analysts, and traders. And as a whole, this is one of the strongest teams in the intermediate core-plus bond category. The managers execute a disciplined strategy that often sees them cut risk as market cycles age and add risk during periods of turmoil. It's this quality that makes the fund something that investors may want to consider today. The equity and fixed-income markets have been on a significant run in 2019. But this fund has been conservatively positioned. Indeed, relative to its core-plus peers, it has one of the most conservative portfolios in the category.
Alex Bryan: Vanguard Total Bond Market ETF is an attractive core investment-grade bond fund because it's one of the cheapest options available, and it takes less risk than most of its actively managed counterparts. That should allow it to more effectively diversify stock holdings in your portfolio. This index fund offers broad exposure to U.S.-dollar-denominated investment-grade bonds with at least one year until maturity. It weights these holdings by market value, which harnesses the market's collective wisdom about the relative value of each holding. This also keeps transaction costs low by mitigating turnover and tilting the portfolio toward larger debt issuances, which tend to be cheaper to trade. This is a conservative strategy that favors high-quality Treasuries and agency mortgage-backed securities, which jointly account for about two thirds of the portfolio. The fund will always keep pace with its counterparts that overweight lower-quality issuers, but it should hold up better than most when credit spreads widen, which typically occurs in tough economic environments. Its low expense ratio should also benefit investors regardless of the market's direction.
Eric Jacobson: Harbor Bond is subadvised by Pimco and offers a proven process in one of the bond market's best and most well-resourced management teams. We have been fans of both Pimco and this fund for quite a while, and this one approximates the same strategy as Pimco Total Return and carries a Gold Morningstar Analyst Rating. There's a change on the way for that management team, but it's not putting a damper on our enthusiasm. Mihir Worah has comanaged the portfolio with Scott Mather and Mark Kiesel since the three took over when Bill Gross resigned abruptly in late 2014. And Worah is stepping down from the fund at the end of 2019 and is planning to retire a few months later. The fund is still among the best ways to core bond exposure, though, particularly for individual investors, given the excellence of Pimco's personnel and research resources. That includes Mohit Mittal, a longtime Pimco manager who is stepping up to fill Worah's shoes here. Mittal's responsibilities have expanded considerably since he joined Pimco in 2007 as an interest-rates and derivatives specialist, and senior leaders have often dubbed him a rising star at the firm.