Streaming Into Bonds
Fixed-income gained more ground, while the 14 best-performing equity
mutual funds all focused on precious metals and enjoyed gains of more than 20%.
By Laton McCartney
In an uncertain economy, there has been a rush of assets into bond mutual funds. In October alone, investors added $29.6 bil- lion to taxable bond funds while withdrawing $8.3 billion from U.S. stock funds, Morningstar reported.
“About $220 billion year-to-date has gone into bond funds,” says
Michael Rawson, a Morningstar fund analyst. “The percentage of assets that were in bonds started out at about 13% some 10 years ago.
That has doubled to about 26%. So there has been this dramatic shift
from equities into bonds.”
Topping Morningstar’s ranking of
fixed-income bond funds for the
three months that ended on Oct. 31
were John Hancock High Yield Bond,
John Hancock Funds 2 High Income
and the Nuveen Preferred Securities.
Respectively, these funds generated
yields of 7.69%, 7.47% and 6.84%,
much more than the yield of many
Caveat emptor, however: These
funds may follow a high-risk path.
“Many of these funds’ portfolios
bonds,” Rawson notes. John Hancock Funds 2 High Income, for instance, may invest up to 10% of its assets in securities that are rated
in default by Standard & Poor’s or Moody’s.
The worst performers in the fixed-income category were almost
entirely long-term and intermediate-term government bond funds.
This reflects the dicey financial status of many city and state governments and the looming fiscal cliff. The biggest losers for the three
months ended Oct. 31 were the Pimco Extended Duration Fund
(down 7.34%), Vanguard Extended Duration Treasury (down 6.67%)
and the Rydex Government Long Bond (down 5.38%).
Despite significant outflows over all, some equity funds had solid
performances in the most recent three months. The Vanguard In-
stitutional Index Fund, the largest stock fund
tracked by Morningstar, with a portfolio worth
upward of $114 billion, uses a classic index-
ing approach to track the performance of the
S&P 500. This fund was up 2.95% for the three
months ended Oct. 31 and had gained 15.18%
for the latest 12 months.
‘The percentage of
assets that were in
bonds started out at
about 13% some 10
years ago. That has
doubled to about
26%. So there
has been this
tech, real estate retreat
At the other end of the spectrum, two
technology funds topped Morningstar’s biggest loser list: Fidelity Select Electronics (down 7.86% for the latest three months)
and Fidelity Select Computers (down 4.48%).
Real estate fared poorly, as well; 16 of the 20
worst-performing equity funds were real estate
funds, although many of these funds had solid
gains for the latest 12 months, with returns as
high as 14.42%. FP
Laton McCartney is a New York writer who’s
contributed to Money Management Executive and Information Management.
January 2013 Financial Planning 63