Posts Tagged ‘bond funds’

A little more than 3 months ago, the Mutual Fund Site provided a couple of firm recommendations on where mutual funds investors should invest their money. As far as we were concerned, these were exactly where to invest, even though our gut told us at the time that then-current market conditions made such a task rather difficult.

Those two funds were the Janus High Yield Fund as part of our Income Class recommendation and the Ivy Small Cap Value Fund as part of our Growth Asset Class.

To date, the Janus High Yield Fund has returned 4.37% YTD, a reasonably good return given all of the speculation and doubt surrounding the Income asset class these days. Are we satisfied with this return? With the performance?

Yes, indeed we are. The fund remains under the management of Gibson Smith and has stuck to its mandate. It remains invested primarily in mid-term, below investment-grade bonds (the average yield is a touch over 10%) and, well, provides investors with a positive rate of return. This is no easy task since, as we all expected, interest rates are on the move.

Our other fund, the Ivy Small Cap Value Fund, has returned 13.39% YTD. Some of the reasons this fund has performed so well could have something to do with Ivy’s overweightedness in financial services. However, we are not overly concerned that this fund is at risk the way most individual investors and some other funds are. The reason is simple: Ivy has invested in medium and small cap financial services firms. Dividend yield are strong (they would make GE and other financial firms look cheaper and greedier than they are) and many of the underlying assets have yet to enjoy the gains that the rest of the sector has thoroughly enjoyed recently.

Would we change anything?

No, not at this point. Both funds remain healthily below average in terms of the risk profiles versus their peers. And both have returned more to investor than anyone else would have expected at the start of the year (we even found some interesting trash talk on another, nameless website). Which bring us to the rest of the year…

We expect the Janus fund to handle the obstacles ahead with relative ease. They have performed well to date, but the challenges will keep Gibson busy.

We also believe that the Ivy Small Cap Value fund will face challenges, particularly when so many individual investors who have poured their money into these big bank stocks realize that the fundamentals are not there to support those price run-ups. However, the fact remains that the companies in which the Ivy fund has invested remain profitable and well capitalized with continued improvements to their equity positions through retained earnings. Overall, both funds are not only where to invest your money, but will continue to see some strong returns throughout the year.

An interesting philosophy exists, whether you invest in mutual funds or straight equities, that suggests we can all know where to invest if we go against the current rather than with it. In other words, if we adopt a contrarian mentality, we stand see some sold long-term gains in our portfolios. As an investment strategy, this is not always an easy thing to do. When you get into picking the best mutual funds, it becomes even tougher. (And of course if we are short-term traders, then it becomes virtually impossible).

So, where to invest…

Common sense and history tell us that if we all invest in a single asset, we drive the price of that asset up. Look at Oil in 2007. Look at Gold today. Look Apple shares. But the risk you run when you follow the herd is that you end up buying that asset somewhere near the peak of its price range, exposing your portfolio and investment to some serious and very real risks. For these reasons, we often try to find that diamond in the rough, that undiscovered security that is trading at a terribly low valuation — look at RIMM seven years ago, for instance, Teck Resources (TCK) even 1 year ago. Again, with the power of hindsight, we would all be retired by now, and we would all be millionaires.

With this “find the diamond in the rough” mentality, a couple of things can happen. One, we take on exaggerated risks because the assets we buy are simply cheap; they lack the fundamentals to support investing in them at all. The second thing that happens is that we hit a grand slam, we pick the right security at the right time when everyone else threw money at the latest and greatest Wall Street gem. The latter, of course, is an example of Contrarianism and this is exactly how we should invest, according to some.

What is Contrarianism?

This type of investment practice can mean a different things for different investors. The obvious interpretation is to sell when and what others are buying, and vice versa. It speaks to Warren Buffett’s famous quote: “Sell when others are greedy and buy when others are fearful” (not an exact quote, but the message is bang-on).

On a deeper level, it involves going in areas that others are ignoring. It means buying Citigroup (C) when it was trading at $1.02 and everyone else was not only ignoring it, but buying bonds at ridiculously low rates. It also means believing in the company’s fundamentals, trusting that the Board is doing the right thing by appointing Vikram Pandit after Charles Prince resigned (of course, each company will be different, the names will change but, in Bon Jovi’s words, the streets are the same).

It is in my opinion that this second type of Contrarian investment practice is the one we want to adopt as amateur, novice and even intermediate investors. Not only is it less risky (e.g. ignoring a strong asset class altogether and dumping money into unfavored classes even when fundamentals do not support it), but we can actually apply this practice to mutual funds purchases.

Now, understand that great websites like Morningstar have built tremendous intellectual capital, websites, and businesses doing exactly the opposite. That is to say that their models often favor top-performing funds where regular investors are flocking (this website’s Top Picks are great funds that Morningstar has ranked well, also). And other sites like FundAlarm also takes this view, ranking funds as “dangerous” if they fail to meet or exceed their group or category for three measurement periods.

But Contrarianism takes a different view. Often, the mutual funds you should invest in under this theory are those with net redemption figures, which are often triggered by poor performance track records that gets noticed by those two websites mentioned in the previous paragraph. Some Small Cap Funds like the Ivy fund (YTD return of 9.74%) we like, for example, invest heavily in small to medium cap financial services firms. Investing in this Ivy fund could certainly be considered a contrarian move; investing, on the other hand in the High Yield Investment fund that we recommend (YTD return of 3.80%), would not have been.

While both funds above are in completely different asset classes, they have both outperformed their peers, which leads to a natural question: do Contrarian Investment Practices really work?

The simple answer is: yes they do, especially with mutual funds.

(More to follow… check back soon as we take a deeper look into this interesting investment strategy and provide a tangible foundation to our argument).

Despite all of the press out there that suggests that high yield investments are not where investors want to invest, there is a small group of professionals (including those of us at the Mutual Fund Site) that believe that these mutual funds are indeed still favorably priced. But not everyone is well suited for high yield investments. Those people will typically chasing growth rather than income. For those investors, dividend funds might be where to invest.

The interesting thing with dividend funds is that they provide income, much like a bond fund or high yield investment would pay income (the difference is dividend income versus interest income). With dividend mutual funds, investors can expect yields around the 5% range, some higher and some lower depending on the fund you are considering.

But the kicker with dividend funds is that investors should be more focused on the growth prospects of the securities held within that mutual fund. The Vanguard High Dividend Yield Investment as an example pays roughly 5% but is also invested in large-cap value stocks. While that yield is certainly nice, the underlying holdings have an average P/E ratio of 15.7. This suggests that the future gains will come more from the growth of those underlying securities than the dividends themselves.

While we have not completed our full analysis of the Vanguard High Dividend Yield investment, this fund illustrates the difference between high yield funds and dividend funds. That key difference? Where the future returns are most likely to come from.

As for risk, the investor will need to determine the proper level of risk he or she is willing to assume. This will ultimately determine the type of fund (growth versus value, large cap versus mid- or small-cap, etc.) and can help create something of a short-list for the investor. In essence, however, dividend funds are similar to high yield bond funds. But the bottom line is that bonds will pay income and dividend funds pay dividends as a bonus; the key is in the long-term growth prospects.

So when it comes down to it, dividend funds are not the new high yield investments. They are merely different beasts co-existing for different investors with different needs.

Our site has seen a lot of traffic coming in to see what our 2010 Top Pick has been… and why. Although more and more investment sites are starting to see the true potential in high yield investments, there is still a lot of negativity when it comes to these types of mutual funds particularly for this year (2010). A lot of the uncertainty might have to do with just how well these bond funds have performed over the past year (2009), some returning just as much as the S&P 500 (and some returning even more). While there is a fair amount of risk associated with the types of funds, we are at a point in history that may never repeat itself for the balance of our lives.

…we are at a point in history that may never repeat itself for the balance of our lives.

At the Mutual Fund Site, we believe there are two things working in the favor of investors who look at high yield investments for 2010 (and our High Yield Investments: Top Pick for 2010 in particular). We will outline the advantages briefly:

1. As markets improve, so will yields on these high yield investments. While this statement runs contrary to the academic studies of the past, consider this: The credit crisis of 2007 – 2009 pushed rates on all types of non-government borrowing sky high. Government rates of course fell through the floor due to demand, and this high demand for government bonds and low money supply for corporate bonds created a wide spread between corporate and government rates.

As the economy improves, rates typically increase in order to keep the economy from overheating. This time is different because corporate rates are already high, meaning they will either stay the same or drop marginally. We see a few common reasons for this. The first being that with there being less perceived default risk, more money supply will head into the corporate side. As supply rises, rates will start to drop (or in the case of rising rates, stay the same). This will have the effect of narrowing those spreads between corporate and government rates. As well, default risk will tangibly reduce because as the economy recovers those companies that were seen as “suspect” will become healthy again while those that were expected to fail will have already failed and be gone.

2. High income, high market value. Probably the most persuasive reason to hold high yield investments today is that the rates story (outlined above) will provide bond holders (again, visit our Top Pick story) will benefit from higher income. And if turns out that those rates start to drop rather than staying the same, then the other part of this equation is that the bonds in question will start to appreciate in value (remember, as rates drop, prices rise). This presents high yield investors with a double-bonus system of enjoying higher income derived from those original, inflated rates and the added bonus of higher market prices that the markets will pay for such high-rate bonds.

Remember, the primary motive to invest in bonds is the income (hence the “income class”). Unless the economy makes a miraculous recovery and starts providing returns that are far in excess of expectations, then those rates will not skyrocket. They will, at the very least, remain level, making high yield investments a great place to invest for 2010. And if your income class knowledge is sub-par (or you want to properly invest in this class) the only way to play this game well is through mutual funds or ETF’s.

Okay, you have just three years and a hundred thousand dollars burning a hole in your pocket. Three measly years and you need to know where to invest that money so that, in three years when you need that investment, you know that you have not risked that money for the sake of return. Where do you invest it? What type of mutual funds, including ETF’s meet this requirement?

Three years as a time horizon is a tricky one. It is neither short-term nor long-term. Some may call it medium-term, but when you have just three asset classes from which to choose – cash, income, equities – how to do you find that best 3-year time horizon. Because let’s face it; based on the interest rate environment, many bond funds now have a 5-year time requirement. And high yield investments, due largely to their speculative nature really should be longer-term, even if they come with the probability today that they will benefit from rates in the next 12-36 months.

Based on the interest rate environment, many bond funds now have a 5-year time requirement…

And equity funds, well, even the most conservative come with a minimum time investment of 5 years. Anything short of that is just far too risky for the investor. Of course, luck can always prevail and provide the right return after just 3 years, but there is no guarantee of that. Suppose you invested in 2005… three years later would put you into 2008, arguably one of the worst years for the markets. You would have been (censored), kicking yourself.

Okay, and let’s say you invested in bonds at the same time. Short of a government bond fund that saw rates plummet while the US borrowed heavily and saw some rates so close to zero that brokers quoted them that way, you would have also been (censored), kicking yourself for ever thinking that bond funds were the safest and greatest thing since, well, sliced bread.

In 2005, the best 3-year investment would have been a 3-year term deposit… with a financial institution that did not go under. But remember, even people who invested in Citibank were nervous in 2007/2008, lining up to get access to their money. Remember that panic?

But that was the past, right? Today, things are different. Citi is still around, rates are at their lowest and some of the best performing mutual funds in 2009 were indeed bond and equity funds. It makes high yield investments look really lucrative right, especially after this very site announced that its top pick for 2010 was a high yield investment fund. But even the most aggressive financial planner would recommend a 5-year time horizon on a fund like that!

So what are your options when it comes to a 3-year maximum time horizon?

Cash Equivalent

You could look at a cash equivalent fund, but kiss any kind of return goodbye.

You could also look at a term deposit but consider than rates are likely to increase, so if you lock up your money, you will lose purchasing power.

Bond Funds

While bond funds will present marginally more risk, your short-term bond funds will allow fairly decent turnover within the fund, mitigating the risk of holding longer term funds. While rates of return will not come close to those expected in some of the riskier funds, the idea here is to get back what you invest.

Diversify

Perhaps your best bet with your $100,000 and 3-years, would be to diversify your holdings. This might look like 30% short-term bond funds, 30% cash equivalent or Treasuries, 25% Cash, and 15% term deposit. The strategy might involve using the cash and cash equivalent funds to gradually increase your short-term bond holdings or term deposit holdings based on the performance over the next 2 years so that at the end of 2 years, your portfolio might have 65% short-term bonds and 35% term deposits that mature in the year that you need the funds.

A riskier investor might be able to absorb the potential volatility and impact that a lower-risk equity fund can offer, but most financial planners will not even touch that one… leaving you to make your trades with a discount broker.

At any rate, realize that with 3 years your investment options will be limited. And while growth and returns will be low, your objective should be to virtually guarantee return of capital. Even the most educated fund manager would subscribe to such a strategy, ensuring that investment risk is only so high as the expected rate of return.

One of the recurring themes with mutual funds investing is the topic of investment management (it has been stressed throughout these posts). And this, naturally, is where bond funds slip onto the scene. As with every good investment management strategy, bond funds fill the all-important but often overlooked fixed-income pocket of your portfolio. But not all bond funds are created equally. In fact, unlike straightforward equity funds where an equity is an equity is an equity, your bond funds will involve different types of fixed income assets, each of which can have different sensitivities to the same market impulses.

In periods of low interest rates, bonds funds are usually a place to avoid. The reason for this is simply because rates and bond prices have an inverse relationship. In other words, when rates start to rise, bond prices start to drop. However, even in periods of low interest rates, there are opportunities in bonds and bond funds, but the decision as to where to invest (e.g. long-term, short-term, muni, corporate, junk, etc., etc., etc..) is much more complicated.

In periods of elevated interest rates, bonds become more attractive because along with the higher income, the potential for falling rates enables the investor to enjoy capital gains in the price of the underlying bonds. The problem when it comes to bond funds is determining whether the fund manager bought too low, whether the fund manager has cash sitting in the bank that will allow for additional purchases at these elevated rates, whether the manager will have to offload bonds at a loss and so on.

In some ways, investing in bonds individually can sometimes be easier than investing in a bond fund where the investor buys the whole package rather than being able to cherry-pick the winners and ignoring the losers.

Why This Time It Really Is Different

There are many reasons why the search for properly performing bond funds is different this time around. Much of it has to do with what caused the economic collapse in the first place; credit and risk underwriting. This resulted in credit-granters withholding funds in an effort to stem potential losses. This is normal. A child who burns himself on the stove will not want to cook until he realizes what he can do to avoid getting burnt again.

However, even the most risk-averse credit granters realized that some companies seeking credit actually were still credit-worthy. However, to offset the risks associated with lending money, rates increased substantially while rates that governments were paying were on the way down. This is what is meant by the “spread” between corporate and government bonds. Where that spread is normally more narrow, those spreads were rather wide over the past two years. They are currently in the process of narrowing.

The narrowing of the spreads involves two event.

The first is that corporate bond rates drop. This is good news for the higher-rate bond holders as their bond values will increase and their income will remain constant.

The second event is government bond rates start to increase. This is bad news for the bond holders because not only is income low, but those prices will start to drop as well.

Where the unlucky investor stands to lose is in buying the wrong bond fund. While it may seem safe and cozy to invest in government bonds as the risk is lower than corporate bonds, the true risk lies in the fact that government rates will start to increase. This puts downward pressure on the price of those bonds, causing the investor to realize a capital loss.

The better decision would be to invest in bond funds that are corporate in nature; high yield investments. This makes better sense, especially as the risks involved with these bonds and companies disappear and the rates start to drop. This could take well over one year or more to happen, making high yield investments ideal for 2010. (See High Yield Investments: Top Pick for 2010 post for our choice for this year). However, an active investor might way to trade out of such bond funds as government rates become inflated and switch to government bond funds.

Why invest 10,000 dollars? Why not spend it? Why not update the house, take the family on a nice vacation, pay off some debt? These are all great investment management question, even though few of them deal with investments, much less mutual funds or bond funds in particular. In reality, the best way to invest 10,000 dollars will depend largely on your risk appetite.

Low Rates?

Then you are looking at high yield investments, bond funds. High yield bond funds, specifically. Why? Because over the next decade, your investment will perform fairly well. Right now, spreads between corporate bonds and government bonds is rather wide. That means that corporations are paying a lot more to borrow on the market compared to governments. Now, it will always be this way (or it should), but the disparity between the two became unnaturally wide during the credit crisis. This makes sense because lenders wanted to be compensated extremely well for the perceived risks involved with lending to companies.

Of course, those perceived risks slowly began to disappear as the investment world realized that, lo and behold, not all companies were going to fall off the face of the earth. Additionally, inflation is beginning to creep into the system. What this means for bond funds is that the money corporations pay will start to come down (the risks just aren’t there like they used to be) and governments will start to pay more (inflation pressures push for higher yields and this should coincide with an improving economy). Therefore the spreads will narrow.

As corporate bond rates drop, those bond prices will rise. The holders of those bonds will happily take those gains while simultaneously enjoying the income generated from those previously negotiated higher rates.

High Risk?

Higher risk appetites demand higher risk investments. This does not mean getting crazy with highly speculative investments. For the hands-off, sophisticated investors this probably means large- or giant-cap equity funds. Preferably dividend-paying stock will be held within these portfolios, further reducing some of the risks associated with equity funds. Why equities?

Simple. A strong fund with a history of performance, a history of high risk-adjusted rates of return.

Can this be achieved? Yes, and it is probably easier achieved with equity funds than it is with high yield bond funds. After all, even companies that are virtually guaranteed to be around tomorrow and for years to follow are still considered under-valued thanks to the fears of those investing in the markets. Why? Because there are so many mid and small-cap investments that remain poised for failure.

But consider the big oil companies. Industrial materials companies that are directly benefiting from the government stimulus? Financial services companies who have all but promised to repay government loans as of well, yesterday? Are these the types of companies that will further cripple the economy? For the time being, no. (We will have to wait a good five to seven years to know for sure).

So, Where Can I invest 10,000 And Walk Away With 20,000?

We think that if you have three to five years, either high yield bond funds or large-/giant-cap equity funds are the place to be (preferably value-based equity funds) with minimal risk. Will you double your investment in this short period of time? Well, it has been proven by many of these funds that it is not only possible and not only likely, but a matter of history. Just make sure that a 100% is sufficient for your needs. See investment management is not only about knowing when to get in, but when to get out. Whether you want 100% returns or 50%, stick to your objective and get out, regardless of what the markets promise in the months to come. This is particularly important for that first investment, when you are looking at how to invest 10,000 dollars the smartest, most efficient way possible.

It should come as no surprise that the Mutual Fund Site has taken some fire for naming a High Yield Investment (one of the top performing Bond Funds of 2009 as it turns out) as its Top Pick for 2010. After all, Bond Funds were one of the best performers over the past year and a lot of folks believe that you cannot keep a good thing going. And while they are right (you cannot expect year-after-year returns of 40-50%), they are probably wrong about High Yield Bond Funds for the next year. We have three arguments in favor of this group of mutual funds and outline how investors can make extra sure they don’t get burned with the wrong type of investment strategy.

1. Look for highly ranked funds. Morningstar does a great job of ranking funds, but if you use their ranking system, look for funds with steady rankings or consistently improving rankings. That means if you go with a five-star fund, make sure it has been a five-star fund for the 3 year, 5 year, 10 year and overall periods. If not, why? Is it a matter of a bad year overall, management changes, etc.. A five-star fund today should have been a four or five-star fund for the past 3 periods.
2. Consider the holdings, or investment portfolio of the fund. Mutual Funds will have great long-term performance if they hold the “right” securities. The same holds for bond funds. While most bonds will have an asset attached in terms of security, thereby minimizing risks to the investor, the worst thing that can happen to a bond holder (including the mutual fund company) is that the company is forced to realize on the security because of a default on the bond. With this in mind, take a peek at the fund’s holdings. Insofar as investment management, do you agree with the fund’s choice of bonds? If you are bullish on Ford and the bond fund holds GM, a stock you are bearish on, then why pick that fund? What other types of disagreements will there be? In this illustration where you are bullish on one company and bearish on another, you could also consider the total weighting within the fund. In this example, if they hold 0.08% of GM Bonds but the remaining 24 top holdings are okay with you, then I would not necessarily sweat it.
3. Since most top performing high yield investments will hold an average of B-rated bonds, you can take a look at see how their style has changed over the past 3 years. You can also determine how quickly they turnover their assets by measuring asset turnover. One thing you may want to be weary about is whether their investment strategy (or style as noted on Morningstar). If their turnover is high and their strategy has changed from one year to the next, then there are some considerable risks involved. However, an investment strategy that has remained fairly stagnant over the past three years combined with an “average” turnover rate suggests the fund’s strategy has remained relatively the same… they are doing something right.

The three considerations above show us the importance of choosing highly ranked funds. In other words, funds that are held in high regard within the industry. They will achieve this through proper investment management, as demonstrated by their holdings and proper weightings. And since most high yield bond funds will show their average bond rating of B, measure their consistency by viewing their investment style.

It will not be too difficult to complete these three things before investing in bond funds. And since there are so many skeptics out there when it comes to this asset class, making sure you have done you homework properly will help you sleep better at night despite the blasphemous remarks (okay, that was a little strong) being written out there.

Not very long ago, the idea of the income asset class, and bond funds in particular was to provide a decent level of interest income. A nice byproduct of bond funds was some of growth potential they had when bought at discounts or sold at premiums. Such mutual funds were rather blase, boring, even cookie cutter. But insofar as investment management was concerned, bond funds made a lot of sense. They paid better than cash-equivalent funds and for those rates they were still considered liquid; you were never locked in with these bonds funds like you might have been with a term deposit.

But bond funds of yesterday were a little misleading. They filled a void, sure. But they were boring underperformers that betrayed the true potential for wealth that bonds can offer. And for many income class investors, that potential for wealth was and still is tremendous.

One of the reasons why bond funds offer such great potential is thanks to nothing other than this most recent recession the entire world has had the (dis)pleasure of enduring. Perhaps the biggest benefit has come in the form of higher borrowing costs for corporate entities, all while government rates dropped to unprecedented lows. This, in turn created wider-than-normal spreads, presenting an historic opportunity for investors who are new to the income class.

Where investors stand to benefit however is in the arena of high yield investments, themselves bonds. What distinguishes these high yield investments from traditional investment-grade bonds is the coupon rate, or the rate of interest that the companies must pay to the bond holders. In the case of high yield investments, the rates paid are considerably higher than investment-grade or even government bonds because a lot of the companies whose bonds are held within the portfolio have been downgraded by rating companies like Moody’s and Standard and Poor’s.

In fact, many of the companies whose bonds make up the portfolios of these bond funds were rated as investment-grade just a couple of years ago but ever since the rating companies came under fire for some of the ratings they gave to some of those fancy Collateralized Debt Obligations (CDO’s, remember those?). Ultimately, the high yield bond funds are below investment-grade with BBB, BB, B ratings and some rated below B.

But, of course, the companies that issue these bonds need to pledge collateral against these bonds. This collateral is often an important asset to the company, vital to its ability to generate income. Now, consider a company that has bonds against which is pledged a considerably important asset to that company’s success. In addition to this debt, the company has probably issued common stock, or equity. In some cases, there may even be a dividend to be paid on such common stock, but it is rather unlikely (though not impossible) for below investment grade common stock.

A quick review of this scenario reveals that the first people to get paid first are the bond holders. So if there ever were any financial troubles, the bond holders would be paid first. The company, not wanting to risk losing this asset, vital to its ability to generate a single dollar, will do everything in its financial power to ensure their bond holders, where such bonds are investment grade or not, are satisfied. That the terms of their agreement are met.

And with spreads as wide as they are, all companies are paying a considerably higher coupon on their bonds. Therein lies the true opportunity for bond funds…. until those spreads start to narrow. And they will narrow, there is no question. As the economy recovers, all spreads will narrow. Government bond rates will rise and corporate bond rates will drop. Existing corporate bond prices will increase while government issues will drop.

So, in a nutshell high yield bond funds offer a great opportunity right about now. Most bond funds hold securities where the coupon is high. As rates drop, so will the bond price (that inverse relationship is a pretty thing). This helps with capital appreciation. But since the coupon was high to start with, there is also a nice trickle of income being poured into the investment. In essence, today’s high yield bond funds are not the same as the bond funds of yesterday. In fact, they are better. How much better comes down to an average yield of 10+% and 2009 performance of better than 35%.

As part of a press released issued today, the Mutual Fund Site is pleased to announce that its top pick is Janus Capital’s High Yield Fund (JAHYX). This fund is arguably the strongest performing fund in the high yield investments segment. While we cannot sell this fund through the site (you will need to speak with your planner as we are an information-only service), we can provide the following bullet points about this fund:

• Below average risk while achieving above-average returns for the past year, 3 years, 5 years and 10 years
• Tenured management (Gibson Smith since 2003)
• Average credit rating of holdings is B rated
• Average Yield is 11%

As noted in the actual release, we believe that Janus has properly traded the Yield curve with their current top 25 holdings. Additionally, we expect to see turnover (currently 109) slow over 2010 and 2011 as spreads between corporate and government issues narrow heading into late 2010 and early 2011. This presents the opportunity for safe growth within the fund, particularly as corporate credit risk diminishes with time.

We also believe that this fund has properly positioned its trading over the past year or so to take full advantage of downgrades by rating companies. It seems evident now that the fund managers were able to pickpocket the best opportunities insofar as corporate bonds were concerned in 2008 and early 2009. There are strong fundamentals backing virtually all of the fund’s Top 25 bond issuers, which we believe to be a truly exciting opportunity for today’s market-sensitive investors.

While there are other bond funds that have outperformed the High Yield Fund, we firmly believe that no other is as well-positioned for above average returns given the below-average risk shown here.

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Mutual Fund Site Admin Team