Over the past several weeks we've been discussing my favorite mutual funds. These funds were selected based on an in-depth, in-house analysis; last week I shared my favorite funds that invest in TIPS and mortgage-backed securities (MBS). This week, we'll continue with the bond category, or more specifically, we'll look at my picks in the convertible, high yield, and non-traditional space.
This is one of those bond categories that I use on occasion primarily because it has a strong correlation with stocks, hence, it may not provide a great deal of diversification. My choice here is Invesco Convertible Securities Y (CNSDX). With over a decade under its belt, current management has done a pretty good job, especially over the past six years. With a favorable risk/return profile and modest expense ratio, this fund deserves a look.
I should mention that I also like the Vanguard Convertible Securities Inv (VCVSX).
This is a category that I frequently avoid. When the economy slows, defaults tend to rise, which hurts high-yield offerings. I have a couple of picks here. They are Ivy High Income I (IVHIX) and Federated High Yield Bond Inst (FIHBX). Over the trailing three-, five- and 10- year periods, the Ivy offering has a Morningstar Risk profile of "low," "below average," and "low." IVHIX's return profile over the same periods is "above average," "high," and "above average." Expenses are reasonable, its Sharpe ratio is good and its management has been in place for six-and-a-half years.
The Federated fund's manager has been in place for nearly a decade and from 2004 has never fallen out of the top half of its peer group, according to Morningstar. In fact, five of the past eight years FIHBX has been in the top quartile of its category.
This is one of those categories where the investment policy of the included funds can vary widely. Obviously, it's difficult to categorize some of the more 'eclectic' funds. In this category, some funds can take their duration into negative territory when they perceive a rise in interest rates, while others may not. Therefore, a category comparison may not be completely appropriate. That said, my pick here is an offering from Legg Mason, namely, the Western Asset Total Return Unconstrained Fund I (WAASX). It has done well over the past five years. In fact, beginning in 2007, WAASX has been in the top Morningstar quartile every year with one exception, 2007, where it fell into the second quartile.
Next week we'll conclude the bond category by looking overseas. There really is still yield out there. You just have to travel to find it.
Thanks for reading and have a great week!