Brokers: CORE; Bond New York.
BKD Wealth Advisors, which manages more than $2.5 billion, recommended core bond index funds before rates plummeted.
Chances are good that your core bond fund is beginning to live down to expectations.
The fund's core bond fund holding alone dropped 36percentt because of its heavy mortgage-backed securities holdings.
A recent analysis by Morningstar found that nontraditional bond funds have outperformed core bond funds when rates are rising, but have underperformed core bond funds when the stock market sells off, because they tend to own holdings like junk bonds and emerging-market debt whose fortunes are often in sync with stock market performance.
Goldman Sachs estimates that a one percentage point rise in interest rates would reduce the value of bonds in the Barclays U.S. Aggregate Index — the benchmark for high-quality core bond investments — by $1 trillion.
Granted, the prospect of watching your core bond portfolio fail to keep pace with inflation isn't cheery news, but it's worth reminding yourself why you own bonds in the first place.
Brian W. Matthews, managing principal at Payden & Rygel, which manages $52 billion in bond portfolios, including the $520 million Payden Core Bond fund, took a look at what could happen to the Lehman Brothers Aggregate Bond index and to money market funds as rates rose.
Other large total-return bond funds recommended by advisers include Dodge & Cox Income, which returned 10.34 percent, annualized, over the period; TCW Galileo Total Return Bond, 10.71percentt; and BlackRock Core Bond Total Return, 9.07percentt.
In addition to the collateral damage inflicted on equity markets, core bond markets have rallied convincingly; credit default swap spreads have risen across the board and even side-lined gold has managed a $20 pop.
