Invest in diversified bond funds

Invest in diversified bond funds Today's bond investors can make short, medium and long-term investment portfolios according to their own investment purposes. These portfolios can include investment-grade companies...

Invest in diversified bond funds Today's bond investors can build short-, medium-, and long-term investment portfolios based on their own investment purposes. These portfolios can include investment-grade corporate bonds, high-yield or junk bonds, mortgage-backed bonds, and public bonds issued by foreign or domestic governments. According to Consumer Reports magazine, in fact, investors do not need to choose their own investment portfolios and can invest directly in Multi-Sector Bond funds. Managers who manage these funds can use their professional judgment to invest in areas they think are promising, or reduce positions they think have begun to decline. In the past few years, when bond yields have generally been low, the return performance of some diversified bond funds has been relatively bright. For example, the Loomis Sayles Bond Retail Fund's overall one-year return rate is 16.1%. However, Morningstar analyst Kathryn Young, who has long tracked diversified bond funds, said that although it is a good idea to diversify risks through investment portfolios, investors still need to do their homework before deciding which diversified bond fund to invest in. Because these funds have diversified bond portfolios, they are also exposed to varying degrees of risk. For example, fund managers taking on junk bonds take much higher risks than investing in investment-grade corporate bonds. If managers choose to invest in overseas bonds, they run the risk of exchange rate losses. Different diversified bond funds also have looser regulations on managers. Financial consultant Jennifer Cole said that some funds give managers a lot of flexibility. The manager can choose any investment target he wants, and may even adopt some very complex hedging strategies. Some funds have stricter management of managers and less flexibility in manager operations. Before choosing a fund, investors can read the fund's prospectus to understand the fund's operating strategy. When it comes to funds, the most important thing is the familiar saying "past performance does not equal future performance." Since these funds are often all-encompassing, it is difficult to measure their performance. A diversified investment portfolio may include emerging market bonds, junk bonds, investment-grade corporate bonds and mortgage-backed bonds. Such a diverse investment portfolio may not be able to use any index as a relative measurement standard. Morningstar often uses the average performance of similar funds as its metric, and even that approach is not very objective, Yang added. Kerr said that it is not important to her how to use an objective index to evaluate the performance of diversified bonds. "She will be happy if the portfolio underperforms the market when the market is bullish, or if the portfolio performs better than the market when the market enters a bear market." If diversified bond funds cannot be measured against any index, what factors should be considered when selecting these portfolios? Of course, the experience of a fund manager is important, but more attention should be paid to the research team behind the manager. Kerr said, "I want a research team that knows what it is doing, because a one-person team cannot specialize in everything." This means that investors need a larger fund company, and only a large fund company may include members from various professions. Although Kerr prefers the strong research capabilities of large fund companies, she avoids choosing the largest diversified bond funds. She believes that the investment targets of large funds are too broad and cannot make sufficient judgments on credit quality. Yang suggested using the fund performance in 2008 as a test standard. 2008 was a very miserable year for most bonds. "If you cannot accept the fund performance that year, it means that this fund is not suitable for you."