Luckily there is lots of information about bonds and bond funds on
both the Internet and in your local library. I'll start with the
best-known sources so that you can check on my conclusions yourself!
I'll discuss how it's recommended to evaluate funds. Then list some
of the best-performing in each rating area.
SOURCES OF INFORMATION
The company that has followed the mutual fund industry (which has
stock, bond and mixed funds) is Morningstar. Morningstar's reports
are in almost any public library and online here:
http://www.morningstar.com/
While the Morningstar site has a premium service, there is lots of
information available at no charge, including corporate bond funds
ratings here:
http://news.morningstar.com/List_Pages/Fund_Category_Returns/?fsection=ListCatPerformance
Morningstar reports also include a rating of bond funds with a 1-5
star rating.
Second, the Wall Street Journal does a monthly analysis of all mutual
funds as well, the last one in the Sept. 3, 2002 issue. They list all
of the funds, with their 1 month, 12-month, 3-year, and 5-year
performance. The Journal also has two bond indexes that you can use
to compare a particular fund's performance against -- the Dow-Jones
Corporate Bond Index and the Lehman Brothers Aggregate Bond index.
Finally, SmartMoney.com has a number of screens and analyses, though
some fund analysis tools have become part of their premium service.
One of the hardest categories to show for a mutual fund is volatility
or risk -- but SmartMoney includes a measure for it with their fund
screener:
http://www.smartmoney.com/fundscreen/index.cfm?story=20020826
EVALUATING FUNDS
There's not much difference in opinion on how to evaluate mutual funds
or corporate funds. The questions to ask are:
1. How has it performed?
How has it performed short-term? Long-term? Against an index like
the Dow-Jones Corporate Bond Index or other? Some funds may perform
well in times of rapid interest rate changes simply because they're
invested for a shorter term -- meaning that the bonds won't change in
value as rapidly.
2. How risky has it been?
This is one reason that most mutual fund charts show the returns over
the quarter, the year, 3 years and 5 years -- changes in overall
market conditions can make last year's growth opportunity look
terrible. Bonds are more influenced by interest rates than changes in
stock market values, but both have a significant impact on your bond
fund.
Also be aware that there are different types of corporate bond funds,
with high yield funds being lower-rated bonds that carry more risk.
With international bond funds you add the volatility of changes in
exchange rates.
3. What does it own?
The value of reading the prospectus is knowing specifically what the
fund owns. As an example, with rumors of United Airlines seeking
bankruptcy protection, it would be wise to examine what United bonds a
fund holds.
4. Who runs it?
The importance of a fund manager is most-important for stock funds.
Peter Lynch grew Fidelity's Magellan Fund consistently during his
13-year tenure and made it the largest mutual fund in the world. But
companies have different strategies in churning their holdings and in
maintaining expense ratios -- which gets us to the 5th consideration .
. .
5. What does it cost?
Many studies have been done trying to find investment advantages that
work long-term. In the process we've learned the costs of active
trading can hurt returns. One company, Vanguard, started with a
philosophy of holding costs down by reducing trading and active
management and has been very successful.
You can compare costs by looking at three things:
1. expense ratios (in Morningstar and other publications)
2. sales charges (from the mutual fund company)
3. your broker's charges. Though there are no sales charges on
Vanguard's funds, your broker may have a service charge for buying
them.
You can see Morningstar's discussion of the same topic here:
http://news.morningstar.com/classroom/article/0,3163,2926-1,00.html
WHICH FUNDS SCORE WELL
Here are the Wall Street Journal's highest-rated bond funds (which
include some government bond funds) for 2002. If you check the
Journal's numbers for 12-months, 3 years and 5 years, these rankings
change substantially:
PIMCO: RI Rtn Asset
American Century: T2030
Delaware Pld: Intl Fixed
Delaware Pld: Glbl Fixed
FMO: Intl Bond
American Century: T2020
American Century: T2025
American Century: T2015
Stand Ayer Wood: Intl Fxd
T. Rowe Price Intl. Bond
Morgan Stanley Inst.: Intl
American Century: Intl Bond
GO: Global Bond
Munder: Intl Bond
FFTW: International
UBS Global Bond
I'd highly recommend reading the Morningstar summaries of Fixed Income
Funds at the local library or at their website. You'll find different
funds at the top of the 3-year, 5-year, and 10-year funds; you'll see
the Morningstar rating; and it lists sales charges. (You can also see
the worst performing funds on the same page!)
Eliminating government bonds, here are some of the top-ranking funds
in the 3-10 year categories:
Fidelty New Markets Inc.
T. Rowe Price Emerging Market
Scudder Emerging Marketing
Pioneer High Yield
PIMCO Real Ret Bond A
American Century Target 2020 Inv
PIMCO Total Return Instl
ING GNMA Income A
Dreyfus Intermediate Term
Fremont Bond
Harbor Bond
Vanguard Long-term Corp. Bond
This may look daunting to pick from this list. But I'd recommend
picking a 3-5 funds from three different companies, then getting a
prospectus so that you can read about their strategy; see what they
have in the portfolio; and look at their expense ratios.
This Wall Street Journal has a site which allows you to order a
prospectus on-line at:
wsj.fundinfo.wilink.com
Good luck with your investing!
Best regards,
Omnivorous-GA
MBA/Finance
University of Chicago, 1979 |
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