Top 5 Diversified Bond Mutual Funds (March 2011)

Investors looking for a convenient route to hold bonds across different sectors would benefit from investing in diversified bond funds. When one considers the costs of holding such bonds individually, this is also a relatively affordable method. Diversified bond funds also reduce investment risk by holding securities across classes and sectors. This ensures that a negative outcome in a specific sector only has a partial effect on the fund’s returns. The opportunity to reinvest income regularly and high 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 returned 11.06% in the last one year period.

The diversified bond mutual fund has an expense ratio of 1.18% 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 8.97%.

As of December 2010, this diversified bond mutual fund held 1222 issues, with 2.80% of its total assets invested in Fidelity Revere Str Tr.

GMO Core Plus Bond III (GUGAX) seeks total return. The majority of its assets are used to purchase bonds which are part of the funds benchmark as well as instruments with identical characteristics. It may also invest in global interest rate, currency, and emerging country debt markets. The diversified bond fund has a ten year annualized return of 3.16%.

Thomas Cooper is the fund manager and has managed this diversified bond mutual fund since 1997.

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 returned 11.12% in the last one year period.

The diversified bond mutual fund has a minimum initial investment of $1,000 and an expense ratio of 1.10% compared to a category 54average of 1.13%.

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 five year annualized return of 6.03%.

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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