Good downside protection is an underrated quality in a bull market, but boy is it a lifesaver in a bear market. Today, I’ll highlight three funds producing strong performance by losing less than their peers. These are the sort of funds that help you stay invested through tough times. If you give up in a bear market, you’ll substantially reduce your long-term returns. 3 Good Funds Having a Great Year These funds earn either a Morningstar Analyst Rating of Bronze or Gold.
- Vanguard Short-Term Inflation Protected Securities VTAPX
- FPA New Income FPNIX
- Fidelity Intermediate Bond FTHRX
Vanguard Short-Term Inflation Protected Securities is down just 1.3% year to date, making it one of the top-performing TIPS funds. This Gold-rated fund has the benefit of low costs, which always help in down markets, or up markets. But the big reason for its performance is it has less interest-rate risk than its peers. Yes, TIPS have inflation protection, but they don't have protection against rising rates. That's why a short-term TIPS fund like this one is holding up so well.
Bronze-rated FPA New Income is all about defense. The fund is wary of credit risk and interest-rate risk and thus consistently has a low-risk profile. Its 3% loss for the year is smaller than 90% of short-term bond funds.
Finally, Fidelity Intermediate Bond's absolute loss of 8% for the year to date sounds grim, but that's actually in the top 5% of intermediate-bond funds. That shows just how bad things have been in that category. The category on average is down 11.5% for the year as credit problems and rising rates have been a double whammy on a group that usually produces pretty solid, boring returns. Rob Galusza has some tight guardrails on credit and interest-rate risk that keep the fund out of trouble. The fund now boasts solid risk-adjusted returns over Galusza's tenure.
For more from Russ Kinnel, watch "3 Good Under-the-Radar Dividend Stock Funds."
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.