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Flexible Bond Funds Flop As Rate Drop Stings Top Sellers
FYI: The new generation of bond funds just can’t keep up with your parents’ investments. Unconstrained funds, part of a new breed of mutual funds designed with the flexibility to profit in rising and falling markets, returned an average of 1.2 percent in 2014, compared with 5.2 percent for intermediate-term funds, historically the most popular bond investment. The new funds, the best-selling segment of the fixed-income category in 2014, also trailed in the past three and five years, and are behind again in 2015, according to Morningstar Inc. Regards, Ted http://www.bloomberg.com/news/print/2015-01-15/flexible-bond-funds-flop-as-rate-drop-stings-top-sellers.html
"Nontraditional funds are trailing intermediate funds again in 2015, as interest rates continue to fall. Intermediate funds returned an average of 0.9 percent as of Jan. 13, while flexible funds lost 0.1 percent, according to Morningstar.
It still may be too early to make a valid judgment about the flexible funds, said Sarah Bush, a senior analyst at Morningstar.
“They haven’t been around that long,” Bush said in a telephone interview. “We are going to have to see how they perform through a whole cycle.”
>>>Say what? Perhaps the fund type has not been around very long; but hopefully many of the fund managers have, eh? The managers are "unconstrained" by the fund prospectus and happened to get the call wrong on bond prices. Not unlike "calling" any other sector of investing and not unlike what we individual investors face in our "unconstrained" portfolios attempting to stay ahead of the curve with where to "put the money" to obtain a best total return. Many folks have had problems with bond directions over the past few years, yes?
>>>Say what? Perhaps the fund type has not been around very long; but hopefully many of the fund managers have, eh? The managers are "unconstrained" by the fund prospectus and happened to get the call wrong on bond prices. Not unlike "calling" any other sector of investing and not unlike what we individual investors face in our "unconstrained" portfolios attempting to stay ahead of the curve with where to "put the money" to obtain a best total return. Many folks have had problems with bond directions over the past few years, yes?
Regards, Catch
You've got that right Catch. The managers are unconstrained, can go anywhere and do anything, and as you said, "happened to get the call wrong on bond prices", the direction of interest rates, etc.
Interesting that many of the mutual fund companies' "non-unconstrained" funds are doing fine. Just compare the Metropolitan West Unconstrained Bond with their Total Return Bond, the PIMCO unconstrained with the PIMCO Total Return, Harbor Bond vs. Harbor Unconstrained Bond, etc etc.
Isn't that a bit ironic, that when they can go anywhere and do anything, their performance has been terrible compared to when they are constrained by the Prospectus to invest closely to pre-established guidelines, often even not allowed to stray too far from an index?
Comments
Noted at the end of the M* article:
"Nontraditional funds are trailing intermediate funds again in 2015, as interest rates continue to fall. Intermediate funds returned an average of 0.9 percent as of Jan. 13, while flexible funds lost 0.1 percent, according to Morningstar.
It still may be too early to make a valid judgment about the flexible funds, said Sarah Bush, a senior analyst at Morningstar.
“They haven’t been around that long,” Bush said in a telephone interview. “We are going to have to see how they perform through a whole cycle.”
>>>Say what? Perhaps the fund type has not been around very long; but hopefully many of the fund managers have, eh? The managers are "unconstrained" by the fund prospectus and happened to get the call wrong on bond prices. Not unlike "calling" any other sector of investing and not unlike what we individual investors face in our "unconstrained" portfolios attempting to stay ahead of the curve with where to "put the money" to obtain a best total return.
Many folks have had problems with bond directions over the past few years, yes?
Regards,
Catch
LMAOX and CRUMX still look good to me.
Kevin
Interesting that many of the mutual fund companies' "non-unconstrained" funds are doing fine. Just compare the Metropolitan West Unconstrained Bond with their Total Return Bond, the PIMCO unconstrained with the PIMCO Total Return, Harbor Bond vs. Harbor Unconstrained Bond, etc etc.
Isn't that a bit ironic, that when they can go anywhere and do anything, their performance has been terrible compared to when they are constrained by the Prospectus to invest closely to pre-established guidelines, often even not allowed to stray too far from an index?