Here are some new investments that those saving for or living in retirement might consider for their...
Five Funds for Multi-Sector Exposure
07/30/2015 9:00 am EST
Multi-sector funds are an interesting lot. They differ from the core bond category of intermediate bonds by having 35%–65% in below-investment-grade debt, explains Russel Kinnel, editor of Morningstar FundInvestor.
Multi-sector funds also tend to invest more overseas. And most have the flexibility to move around quite a bit and the better ones put that flexibility to good use.
PIMCO Income (PONDX)
Dan Ivascyn has made this a bright spot amid all the Bill Gross controversy. The fund continues to perform brilliantly and investors continue to send money Ivascyn’s way.
The fund is in its peer group’s top 5% over the trailing three- and five-year periods thanks to some very bold moves.
Most importantly, the fund has about 40% of assets in non-agency mortgages. These are mortgages without government backing that carry higher yields and much more risk.
So far, Ivascyn’s aggression has handsomely rewarded shareholders. The fund lost a mere 5.8% in 2008, but clearly there’s potential for the fund to get smacked much harder in the next downturn.
Loomis Sayles Bond (LSBRX)
Dan Fuss and team are also enjoying quite a roll; the fund has top-quartile returns over the past three-, five-, and 10-year periods.
Fuss is taking on quite a bit of risk here, though it’s more in the form of high-yield corporate bonds and foreign debt.
Interestingly, management has been boosting its high-yield exposure and short-term Treasury exposure because it is generally cautious, but felt the early-2015 energy sell-off was overdone.
That looks like a good call, but a 30% weighting in non-dollar bonds has hurt the fund so far in 2015. The fund lost a hefty 22.1% in 2008, so you know the downside is serious.
Meantime, the fund is making a gradual transition in which co-managers Matthew Eagan and Elaine Stokes ramp up their responsibilities.
T. Rowe Price Spectrum Income (RPSIX)
This fund is modestly ahead of peers for the trailing three-year period but only in line with the category for the past five years.
Charles Shriver tactically allocates assets among 13 T. Rowe bond funds plus T. Rowe Price Equity Income.
It’s that last bit, a neutral 12% equity weighting, that makes this fund a little different from peers. The fund lost 9.4% in 2008.
Fidelity Strategic Income (FSICX)
The fund has been in the middle of the pack under Joanna Bewick for the past three- and five-year periods, but its longer-term results are strong.
Unlike its peers, this fund doesn’t have much flexibility. The fund’s neutral weighting is 40% high yield (including leveraged bank loans), 30% US government debt,15% emerging markets, and 15% foreign developed markets. The fund lost 11.4% in 2008.
Vanguard Convertible Securities (VCVSX)
Run by the venerable Oaktree Capital Management, this is an appealing fund that in the same specialty bin.
Its three-year returns of 11.56% annualized are well ahead of those seen in the multi-sector category, but that’s because convertible bonds behave like a mix of bonds and equities.
Relative to other convertible funds, this fund has been a laggard in recent years because of its emphasis on foreign convertibles.
However, strong management and a great long-term track record make this a worthy choice. The fund lost 29.8% in 2008, thus illustrating the downside of that equity exposure.
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