Top 5 Diversified Bond Mutual Funds (Jan. 2011)

Diversified bond funds provide investors with a convenient and affordable option to hold a portfolio of bonds from different economic sectors. The costs incurred to create a portfolio of individual bonds would be significantly higher than investing in this class of funds. The associated risk also undergoes a decline since volatility in a specific sector has only a partial effect on the fund’s fortunes. The opportunity to reinvest the income generated and a relatively higher level of liquidity also make them secure and attractive investments.

Below we will share with you 5 top rated diversified bond mutual funds. Each has earned a Zacks #1 Rank (Strong Buy) as we expect these mutual funds to outperform their peers in the future.

MainStay Diversified Income A (MASAX) seeks current income and substantial overall return. At least 65% of its assets are invested in domestic and foreign debt or related securities. It may also utilize up to 30% of its assets to purchase common and preferred stock, rights and warrants. The diversified bond mutual fund has a five year annualized return of 6.8%.

The diversified bond mutual fund has an expense ratio of 1.27% compared to a category average of 1.13%.

Fidelity Strategic Income (FSICX) invests heavily in debt securities, including those rated relatively lower. High yield debt, U.S government securities and corporate securities constitute the fund’s major investments. The diversified bond mutual fund has a three year annualized return of 8.43%.

As of September 2010, this diversified bond mutual fund held 1200 issues, with 4.69% of its total assets invested in Fidelity Revere Str Tr.

Delaware Optimum Fixed Income A (OAFIX) seeks capital appreciation and income. The fund invests at least 80% of its assets in fixed-income securities. It purchases a wide range of government securities, corporate debt, municipal and asset-backed securities. The diversified bond mutual fund returned 10.39% in the last one year period.

Paul Grillo is the fund manager and has managed this diversified bond mutual fund since 2003.

Pioneer Strategic Income A (PSRAX) invests a large portion of its assets in debt securities. It focuses on acquiring debt securities issued by the U.S. government and related agencies, domestic and foreign corporate debt and asset backed securities. The diversified bond mutual fund has a ten year annualized return of 8.44%.

The diversified bond mutual fund has a minimum initial investment of $1,000 and an expense ratio of 1.10% compared to a category average of 1.13%.

Federated Strategic Income A (STIAX) seeks high current income. The fund invests in three major categories of fixed-income securities. These include domestic securities rated below investment grade as well as those rated higher and foreign securities. Not more than 50% of its assets may be invested in any single category. The diversified bond mutual fund returned 10.61% in the last one year period.

Joseph M. Balestrino is the fund manager and has managed this diversified bond mutual fund since 1996.

To view the Zacks Rank and past performance of all diversified bond mutual funds, then click here.

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