Bond Funds

For investors in local mutual funds, 2009 was practically a can't-lose year - coming as it did on the heels of can't-win 2008. All but a handful of the 224 mutual funds managed in Maryland posted gains last year, according to data provided by Bloomberg News. It was a nationwide trend: As fears of economic depression receded, investors drove up values for funds across the board, whether they invested in gold stocks or focused on the battered real estate sector. Every mutual fund index was up last year except the index of funds betting on market downturns by taking almost entirely "short" positions, according to mutual fund tracker Lipper Inc. "It's too bad we had to endure 2008 to get these returns, but that's what most of us did," said Jeff Tjornehoj, a senior research analyst at Lipper.

Baltimore's two major mutual fund companies have joined a small but growing number of investment firms offering ultrashort-term bond funds, which may become an alternative to the traditional money market fund. The T. Rowe Price Ultra Short-Term Bond Fund launched in December and has $175 million in assets. Legg Mason Inc.'s California subsidiary this month filed to register the Western Asset Ultra Short Obligations Fund with regulators. There are now close to 50 ultrashort bond funds, with seven of them introduced last year, according to Morningstar Inc., which tracks funds.

Gotta run.That's been the attitude of many harried investors in bond funds this year as they flee the effects of rising interest rates and continuing scares over misuse of derivative securities by some portfolio managers.Since the value of high-yield "junk" bonds is based in large part on credit quality and not merely yield, these funds have been hurt the least. As a result, outflows from junk bond funds this year have totaled only $2 billion.Tax-exempt municipal bond funds, buoyed by the laws of supply and demand, have seen about $11 billion go out the door.

Legg Mason Inc. reported Friday that it lost $9.5 million in the first quarter, citing the costs of restructuring debt and launching two funds. On a per-share basis, the Baltimore-based investment firm lost 7 cents. Total revenues for the quarter reached $630.7 million. A year earlier, Legg earned $60 million, or 40 cents per share, on total revenues of $717.1 million. Analysts had expected Legg to report a profit of 3 cents per share, according to Bloomberg, which noted that this was the company's first quarterly loss since early 2009.

NEW YORK -- A growing number of mutual fund investors are moving away from long-term bond funds, evidently fearing lower bond prices that could be brought on by higher interest rates, some mutual fund companies said yesterday. The investors seem to be shifting into stock mutual funds and money market funds.The drift from longer-term bond funds is by no means a rout, and some fund groups said their bond funds continued to pull in investor money. But it nonetheless signaled investor caution, which no doubt was brought about by rising interest rates and falling bond prices earlier this month.

BOSTON -- Putnam Investments plans to merge two municipal bond funds in a move that some analysts say is designed to save the firm money."It isn't economically attractive to run a muni-bond fund that's less than $50 million in size," said Donald Cassidy, an analyst at Lipper Analytical Services Inc. The fixed costs of running a small muni-bond fund roughly equal the fees that are generated, he said.Putnam said costs played a part in the decision to merge the $43-million Investment Grade Intermediate Trust with the $7.5-million Intermediate Tax Exempt Fund.

NEW YORK -- Two new studies that recently came across my desk help answer a question asked by millions of investors: "How do I pick a good mutual fund?"You'll be pleased to hear that the answers are easy. (1) Pick a fund without upfront or back-end sales charges, and with the lowest possible annual fees. (2) Bond-fund buyers should pick ,, one that's indexed to the market as a whole. (3) Stock-fund buyers should pick one with a persistently good record. Superior stock funds tend to stay that way.The word on bond funds comes from Lewis Altfest, a New York City financial planner and associate professor of finance at Pace University's graduate school of business.

As interest rates remain stagnant, many investors have fled to bonds, in search of higher yields, mainly by investing in bond mutual funds.But bonds are not without risks. If overall interest rates begin to rise, bond investors could lose part of their principal.Oppenheimer Fund Management Inc. has a free, eight-page booklet that explains how bond funds work. It also points out some of the risks.To order a copy, call (800) 525-7048, Or write to P.O. Box 300, Denver, Colo., 80201-0300.If you call or write, be warned: Your name may be put on a mailing list to recieve unsolicited ales material.

When the Federal Reserve acts to stimulate the U.S. economy by initiating cuts in interest rates, as it did again recently, the impact on economic growth usually is not quickly evident.Prospective business and individual borrowers, who may want to build plants or homes, first must decide to borrow what they need.But lenders -- investors who make money available by buying U.S. Treasury securities, bank certificates of deposit and other corporate and government obligations -- can feel the impact fairly fast as their interest income declines.

NEW YORK -- With interest rates down and the dollar falling, Americans are pouring money at a near-record pace into mutual funds that invest in bonds, and much of that money is going into funds that buy foreign bonds, fund managers said yesterday.But stock fund sales, which have been strong for all of 1992,weakened this month as some investors grew more cautious.Investors searching for higher yields have increasingly been fleeing banks and money market funds, and much of the money has gone into bond funds.

T. Rowe Price Group closed its high-yield bond funds to new investors as of Monday, the Baltimore money manager announced Tuesday. They include the investor class shares and advisor class shares of the $9.2 billion High Yield Fund as well as the $2.5 billion Institutional High Yield Fund. While Price will not accept new investors, existing shareholders can continue to invest in the funds. The funds were last closed in February 2004 and reopened three years ago. Investors have poured hundreds of millions of dollars into both funds in the last year.

Mutual funds specializing in stocks had a rotten second quarter nationwide. International debt problems, falling U.S. housing starts and disappointing job numbers pushed jittery investors from stocks to bonds, a sharp change from the first quarter. U.S.-managed equity mutual funds fell nearly 11 percent on average during the quarter, according to research firm Lipper Inc. Bond funds rose 1.2 percent — and those in Treasuries, thought to be among the safest investments, did particularly well.

A year and a half after the financial sector meltdown, those stocks are at the top of a rebound. Finance was the best-performing mutual-fund sector in the first three months of the year, boosting funds that specialize in that area. Among them: Rydex-SGI's banking fund and T. Rowe Price's financial services fund, which both ranked in the top five of mutual funds that invest by sector and are managed in Maryland. "The lows were so extreme that there's still a good deal of room to appreciate," said Jeff Arricale, portfolio manager of Price's Financial Services Fund, which had an 11.8 percent return in the first quarter.

State money may be tight, but Howard County's legislators got more than they asked for from the $15 million bond money available. The county will get $1.39 million for seven projects, according to Del. Guy Guzzone, Howard's House delegation chairman who also serves on the House Appropriations Committee. The county had requested funds for only six projects. They include $455,000 to help design and begin construction of Troy Hill Park off U.S. 1 in Elkridge; $250,000 for Columbia Association to begin work on a revamped Symphony Woods park; $35,000 for the Howard County Antique Farm Machinery Club; $50,000 for the repair and renovation of the Carroll Baldwin Hall in Savage; $75,000 to build restrooms and other facilities at Alpha Ridge Park; $25,000 to build a concrete pad at the same park for the Howard Astronomical League.

In the aftermath of the 2008 stock market crash that wiped out retirement accounts, nervous investors stampeded for cover and poured a record number of dollars into bond mutual funds last year. Some fund experts say this embrace of bond funds isn't letting up, despite a rally in stocks. And the continued shift to bonds could backfire on investors. Bond funds aren't expected to repeat last year's performance, when certain fixed-income sectors nearly matched or surpassed returns on stock funds.

For investors in local mutual funds, 2009 was practically a can't-lose year - coming as it did on the heels of can't-win 2008. All but a handful of the 224 mutual funds managed in Maryland posted gains last year, according to data provided by Bloomberg News. It was a nationwide trend: As fears of economic depression receded, investors drove up values for funds across the board, whether they invested in gold stocks or focused on the battered real estate sector. Every mutual fund index was up last year except the index of funds betting on market downturns by taking almost entirely "short" positions, according to mutual fund tracker Lipper Inc. "It's too bad we had to endure 2008 to get these returns, but that's what most of us did," said Jeff Tjornehoj, a senior research analyst at Lipper.

The time has come for investors to bail out of two Heartland funds, and perhaps to leave the company altogether. That's the most stern warning I ever have issued about a fund firm that gets into trouble and tries to take Heartland's way out. Heartland's problems started in September, when it adjusted the value of junk bonds in several funds, most notably Heartland High-Yield Municipal and Short-Duration High-Yield Municipal. The pricing changes resulted in those two funds taking one-day hits of 8 percent and 2 percent, respectively.

MID-MONTH suggestions about your money and career:WATCH YOUR MONEY: "One-third of people interviewed believed it's impossible to lose money in bond funds, although prospectus clearly states you may suffer loss." (John Hancock survey)"Credit history will be part of your job application, especially if you're to handle money, approve purchases, etc. Some slow pay won't hurt, but don't be buried under debt." (Good Housekeeping, March)DO IT NOW: "Your IRA works harder if you contribute in January or February rather than wait till April 15 the following year.