Top 5 Diversified Bond Mutual Funds (March 2011)

For investors seeking a steady source of income along with safety of capital invested, bonds become a natural choice. The need to reduce risk via diversification necessitates holding bonds from different categories and classes. This may become an expensive affair, due to the costs of acquiring such instruments individually. Diversified bond funds are an affordable and convenient option for such investors. The presence of securities from different categories also means that a loss from any particular instrument only has a partial effect on the fund’s fortunes.

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.

Putnam Diversified Income A (PDINX) seeks current income and preservation of capital. The fund invests 15% to 65% of its assets in government securities and domestic and foreign corporate bonds. The fund primarily purchases corporate bonds rated investment grade. The diversified bond mutual fund returned 14.5% in the last one year period.

The diversified bond mutual fund has a minimum initial investment of $500 and an expense ratio of 1.01% compared to a category average of 1.14%.

John Hancock Strategic Income A (JHFIX) invests in foreign debt securities of developed and emerging markets, U.S. government and agency securities and U.S. high yield bonds. The fund may also invest in preferred stock and other types of debt securities. The diversified bond mutual fund has a three year annualized return of 10.09%.

Daniel S. Janis, III is the fund manager and has managed this diversified bond mutual fund since 1999.

Columbia Strategic Income A (COSIX) seeks total return. The fund invests in three categories of debt securities. These include, U.S. government bonds and assets backed securities; foreign securities, including those issued from emerging markets and corporate debt rated below investment grade. The diversified bond mutual fund has a five year annualized return of 6.8%.

The diversified bond mutual fund has a minimum initial investment of $500 and an expense ratio of 1.01% compared to a category average of 1.13%.

Virtus Multi-Sector Fixed-Income A (NAMFX) utilizes at least 80% its assets to purchase a wide range of fixed income securities. It purchases U.S. government securities, investment-grade as well as high yield domestic debt securities. The diversified bond mutual fund returned 14.12% in the last one year period.

As of December 2010, this diversified bond mutual fund held 446 issues, with 1.40% of its total assets invested in Australia(Cmnwlth) 5.75%.

Oppenheimer Global Strategic Income A (OPSIX) seeks a high level of current income. It invests the majority of its assets in securities issued by the US government and high yield domestic and foreign securities. The diversified bond mutual fund has a ten year annualized return of 6.9%.

Arthur K. Steinmetz is the fund manager and has managed this diversified bond mutual fund since 1989.

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

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