Intermediate-term bonds are not very exciting, but they do deliver steady gains. They represent a conservative fixed income investment strategy--typically carrying an average maturity of between two and ten years. The interest on these bonds will be greater than for short-term bonds of comparable quality, but less than that for similarly rated long-term bonds. In terms of yield, intermediate bonds come somewhere between short-term instruments and longer-term bonds, which have the highest yields. Hence, intermediate bonds embody "middle-of-the-road" investing.
One of the top fund performers in this sector, the $1.06 billion Federated Bond Fund (FDBAX), combines investment-grade bonds with high-yield corporate securities. The fund seeks a high potential level of income while maintaining moderate risk. Lead manager Joseph Balestrino generally holds about 200 securities diversified across many industry groups. Up to 35% of the fund's assets may be invested in lower-rated higher-yield bonds.
As of Feb. 28, the portfolio sported a weighted average credit quality of A-, an average effective maturity of 7.3 years, and an average effective duration of 5.3 years. The lion's share (nearly 60%) of assets in the fund were rated either A or BBB.
Another strong performer among intermediate bond funds, the $610 million Delaware Corporate Bond Fund (DGCAX), primarily invests in investment-grade corporate securities--that is, those rated BBB or above by S&P.
As of March 31, manager Ryan Brist's portfolio was dominated by banking, finance, and insurance issues (31.1% of assets), followed by telecommunications (6.6%), CMOs (5.8%) and cable, media, and publishing (5.6%). Comprising a total of 356 individual securities, the fund is spread out over 24 countries. On the whole, corporate bonds represented 78.0% of total assets. This fund also features an average credit quality of BBB, average effective maturity of 11.8 years, and an average effective duration of 6.3 years.