Welltower, Inc. (WELL) — a health care infrastructure real estate investment trust — has...
3 Defensive Bond Funds
02/18/2016 9:00 am EST
Negative sentiment in world equity markets prompted us to recommend a reduction in equity allocations for all of our portfolios; as a safety measure, we are increasing our allocation to bond funds, explains Walter Frank, editor of MoneyLetter.
Fidelity Mortgage Securities (FMSFX)
Fidelity Mortgage normally invests at least 80% of assets in investment-grade mortgage-related securities.
Currently, the fund is decidedly high quality, with 91% of assets in US Government obligations and 14% in AAA-rated debt. Mortgage-backed securities pass-throughs dominated the portfolio, at 80.6% of assets.
Its 2015 total return of 1.47% was in the top 6% of its peer group. As of yearend, the fund was yielding 2.43% Duration, a measure of interest rate risk, was 3.8 years.
Vanguard Mortgage-Backed Securities (VMBS)
This ETF tracks the Barclays US Mortgage-Backed Securities Float-Adjusted index; securities in the index are issued by Ginnie Mae, which are backed by the full faith and credit of the US government.
It also invests in issues from Freddie Mac and Fannie Mae, which do not have the same explicit backing. They are actually private companies, not government agencies, but generally are regarded as having an implicit backing by the government.
The fund's recent yield was 1.9% and duration was 4.3 years. Its one-year trailing return of 1.18% put it in the top 1% of the intermediate bond category,
DoubleLine Total Return Fund (DLTNX)
This fund has been a standout performer in the intermediate-term bond space since its early 2010 inception.
In each subsequent calendar year, it never fell below the top 25% in total return performance. In 2015, a 2.07% return put in in the top 97% of its category.
Fund manager Jeffrey Gundlach is well known in the bond investment community. His investment process includes both quantitative and qualitative analysis.
The fund takes a barbell approach to investing. In this case, the barbell is with regard to credit quality. More than 68% of the portfolio is government or investment grade.
On the opposite end, 22% of the fund is invested in obligations rated below B or not rated. The remainder is in cash. The fund's current duration is 3.6 years and the yield is 3.5%.
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