Top 5 Diversified Bond Mutual Funds (May 2011)

Bonds are the natural choice of investors for whom a regular income stream takes precedence over growth of capital invested. However, the cost of creating a portfolio consisting of bonds from various categories may become prohibitive. This is why many investors opt for mutual funds as a convenient and affordable method of investing in bonds. Diversified bond mutual funds further reduce the risk associated with such instruments by holding securities across classes and sectors. Thus, any negative fluctuation in a specific sector has only a marginal 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 13.51% 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 1.15%.

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 10.18%.

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

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 6.96%.

The diversified bond mutual fund has an expense ratio of 1.18% compared to a category average of 1.15%.

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 11.75% 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 7.16%.

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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