(PUB) Investing 2015

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Our Favorite Wide-Ranging Aggressive Bond Funds Tracking Morningstar Analyst Ratings | Russel Kinnel

sell-off was overdone. That looks like a good call, but a 30% weighting in nondollar 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 coman- agers 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 tactially allocates assets among 13 T. Rowe bond funds plus T. Rowe Price Equity Income PRFDX . It’s that last bit, a neutral 12% equity weighting, that makes this fund a little different from peers, though a little like Vanguard Convertible Securities, which is also influ- enced by the equity market. 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% U.S. govern- ment debt (recently split 75% Treasuries/ 25% mortgages), 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. Its three-year returns of 11 . 56% annualized are well ahead of those seen in the multisector category, but that’s because convertible bonds behave like a mix of bonds and equities. Rela- tive 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. K

Multisector funds are an interesting lot. Found in the Specialty Bond section of FundInvestor ’s data pages, they are wide-ranging aggressive funds. They differ from the core bond Morningstar Category of interme- diate bond by having 35% – 65% in below-investment- grade debt. They also tend to invest more overseas. Most have the flexibility to move around quite a bit, and the better ones put that flexibility to good use. Because it’s in the same specialty bin and for contrast, I’ll also look at Vanguard Convertible Securities VCVSX . 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 even as they redeem their shares of PIMCO Total Return PTTRX . 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 important, the fund has about 40% of assets in nonagency 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 expo- sure and short-term Treasury exposure because it is generally cautious but felt the early- 2015 energy

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