Excerpt from the Wall Street Journal

Rising Rates Squeeze Bond Funds

Some funds that held up best strayed from their traditional investing grounds

by Sebastian Pellejero - Feb. 3, 2022

January’s market turmoil hit even the safest bond funds. Some of those that held up best strayed from their traditional investing grounds, or concentrated on the shortest maturities.

Only a few U.S.-based funds that focus on investment-grade taxable debt have earned a positive return or traded flat through January, when including interest payments and price swings, according to data compiled by Morningstar Direct. More than 300 others posted total losses ranging from minus 0.1% to minus 3.6% over the same period.

These bond funds, known on Wall Street as “core” and “core-plus” funds, typically hold some combination of relatively safe assets such as investment-grade corporate bonds, mortgage-backed securities and Treasurys. The pandemic’s bond rally helped power total returns on some core funds as high as 18% just two years ago.

“The fund’s performance in January illustrates the benefits of such a flexible strategy,” he said.

David Kotok, chief investment officer of Cumberland Advisors, said rising rates are likely to spark bigger swings in the months ahead, but investors should resist the urge to make big moves, such as buying riskier debt, with the relatively safe portion of their portfolios. 

“Wear a helmet,” he said. “And don’t chase yield.”

Read the full article at WSJ (with subscription): https://www.wsj.com/articles/rising-rates-squeeze-bond-funds-11643836562

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