Bond funds are looking attractive to investors. Returns are higher than those on bank and money-market instruments, and, in the eyes of many, their fluctuations in value aren't as worrisome as those of the quirky stock market.
Aggressive folks choose corporate bond funds that include some junk bond issues, which have excelled this year. Conservative investors prefer tried-and-true government funds.
The funds' popularity is reflected in rapid asset growth. National Multi-Sector Fixed Income Fund, a corporate fund up 23.66 percent in total return (yield plus value of the underlying bonds) this year, has ballooned in assets from $15 million to $75 million. Janus Flexible Income, in second place with a 22.22 percent gain, increased from $13 million to $60 million.
"Our current average yield is 9.5 percent, with 30 percent of the portfolio in junk bonds," explained Thomas Dial, portfolio manager of National Multi-Sector Fixed Income Fund. Performing well for it have been debt issues of Owens-Illinois Inc., up 60 percent in value; McDonnell Douglas, up 50 percent; and Occidental Petroleum, up 20 percent.
"With mixed reviews about the economy and an election year coming up, investors feel that interest rates will decrease further and that they'd better be prepared for it," said Ronald Speaker, senior analyst with Janus Flexible Income Fund.
Its portfolio is 49 percent in junk bonds, 31 percent in investment grade bonds, 6 percent in a mix of U.S. government securities, 7 percent in foreign government bonds, 3 percent in preferred stock and the balance in cash. Kroger Co. has been a big winner.
"The key with corporate bond funds is to find the credit quality of issues held, realizing basic risk," said Don Phillips, publisher of the Morningstar Mutual Fund Sourcebook.
Top corporate bond funds (including a mix of high-quality and junk bonds) in total return this year, according to Morningstar, are:
National Multi-Sector Fixed Income Fund, Greenwich, Conn., $75 million in assets, 4.75 percent "load" (initial sales charge), $2,500 minimum initial investment, up 23.66 percent.
Janus Flexible Income Fund, Denver, $61 million in assets, no load, $1,000 minimum initial investment, up 22.22 percent.
Idex Total Income Fund, Largo, Fla., $19 million in assets, 7 percent load, $500 minimum initial investment, up 20.89 percent.
Heritage Income Trust -- Diversified Fund, St. Petersburg, Fla., $18 million in assets, $1,000 minimum initial investment, up 20.29 percent.
Top government bond funds (including a portfolio mix of Treasuries, mortgage-backed securities, Fannie Maes, Ginnie Maes and Freddie Macs) are:
National Federal Securities Fund, Greenwich, Conn., $360 million in assets, 4.75 percent load, $2,500 minimum initial investment, up 14.30 percent.
Piper Jaffray Government Income Fund, Minneapolis, $76 million in assets, 4 percent load, $250 minimum initial investment, up 13.28 percent.
Voyageur U.S. Government Securities Fund, Minneapolis, $34 million in assets, 4.75 percent load, $1,000 minimum initial investment, up 11.94 percent.
American Capital Government Securities Fund, Houston, $3.8 billion in assets, 4.75 percent load, $500 minimum initial investment, up 11.93 percent.