I know something about mutual funds, but very little about bonds and bond funds.  Balanced funds like OAKBX are obvious places to get bond exposure and let someone else figure out how to make it work.  Where it gets dicey for me is when I have to look at dedicated bond funds to boost my bond allocation.

I've been watching WMRIX which seems to have a lot of bond exposure even though it isn't a pure bond fund.  LSBRX and HABDX seem to be good bond funds in general.  To a slightly lesser extent, MWTRX.  Can someone explain to me in what ways these are different (or similar)?  Do some of these duplicate holdings/philosophy?  In the current climate (rates probably leveled and due to begin rising), what effect is that likely to have on these funds? 

Please excuse my ignorance; I HAVE tried to educate myself on this, but I just can't seem to get a real handle on what's going on - Short term, intermediate, long-term, Treasury, municipal, commercial, nav, value, etc.  I'm quite liquid at the moment, so the issue is, I guess, WHEN to jump in, and WHERE to jump in.  For example, for regular mutual funds I'm hoping for the market to test the lows once more. 

Is it just a bad idea to get involved with bonds right now?  If the market is tanking (as it did last quarter of 2007 and first of 2008) does this favor a particular KIND of bond and bond fund (like those in HABDX or WMRIX, for example)?  Is LSBRX more "corporate", meaning it is more closely tied to the market than the others?  Any help GREATLY appreciated!

[quote user="Racqueteer"]

Please excuse my ignorance; I HAVE tried to educate myself on this, but I just can't seem to get a real handle on what's going on - Short term, intermediate, long-term, Treasury, municipal, commercial, nav, value, etc. 

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Short term bonds/bond funds are less sensitive to interest rate changes than intermediate and long term bonds/bond funds.  Many consider intermediate term bonds a better investment than long term bonds because you get similar returns with little to no difference in volatility.  When interest rates rise, the value of a bond declines and vice versa.

Muni bonds are exempt from federal income taxes and so you want to keep these in your taxable accounts.  Treasuries are not, but considered safer.  Historically, tax-exempt bonds have paid lower interest rates than taxable bonds, but there has been a recent market dislocation due to auction rates and bond insurer woes that has made munis a good buy lately, but that may no longer be true (I haven't kept up with it - for awhile back at the end of February and through March, they were quite a good buy).

The NAV is the mark to market price of the bonds in a bond fund - in other words, what you could get for the bonds if you tried to sell them that day.

[quote user="Racqueteer"]

I'm quite liquid at the moment, so the issue is, I guess, WHEN to jump in, and WHERE to jump in.  For example, for regular mutual funds I'm hoping for the market to test the lows once more. 

[/quote]

IMO, with the possible exception of muni bonds, bonds and bond funds are not a good buy right now because they are at or near their peaks and will be on their way down.  The reason I say this is because I believe that the Fed is done cutting interest rates and will begin to raise interest rates in 2009.

Munis may still be a good buy now because of the recent market dislocation, but you would have to look into that.  I haven't kept up with it. 

[quote user="Racqueteer"]

Is it just a bad idea to get involved with bonds right now? 

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I think so.  The interest rate cuts are likely done and interest rate increases will follow in the not so distant future and the market is starting to price the bonds accordingly, but they are still higher than they will be in 2009 if I am right.

 

[quote user="Racqueteer"] 

If the market is tanking (as it did last quarter of 2007 and first of 2008) does this favor a particular KIND of bond and bond fund (like those in HABDX or WMRIX, for example)?  Is LSBRX more "corporate", meaning it is more closely tied to the market than the others?  Any help GREATLY appreciated!

[/quote]

If we are in a recession, high-yield (aka junk bonds) are very risky.  They are much better investments during a booming economy when you can get high yields and the risk of default is lower.

If the market is tanking (and I don't think it is - the DJIA closed over 13000 today and although it could back down, I don't think we are going to go back to the January lows but of course, I could be wrong), then people flee toward quality - like treasuries and high grade corporate bonds.  That is what people did in January and that is why treasuries got so overvalued.

Thank you for your response; it helped a lot.  After reading, and then going back to the funds, it appears (to me) that LSBRX is focussed more on corporate exposure.  That suggests (again to me) that it should do better when the economy is on an upswing and MAY tend to overlook rising interest rates, assuming there is still reasonable liquidity in the marketplace?

MWTRX and HABDX seem to inhabit the same space, but seem to be making slightly different bets.  HABDX seems to be out of Treasuries, holding lots of cash, and heavy in the mortgage market.  This seems (to me) to suggest that it is positioning itself for purchases of corporate or maybe municipal bonds, which might help it ride out a rise in interest rates?  MWTRX, otoh, seems to be making the same mortgage bets, but has little liquidity, and is still holding Treasuries.  A more pessimistic view and more open to being negatively impacted by a rise in interest rates maybe?

I'm not sure what to make of WMRIX.  It has done REALLY well, but I'm not sure why!?  It has long-term bond exposure as well as financials exposure.  I guess if it was holding high-interest bonds that would have helped as interest rates were lowered?  And it got lucky with the financials for some reason?  Confusing.  The fund seems to have a mandate to short issues as well as to invest long-term - How can you be long and short CASH?  I'd like to invest in it, but I really don't understand how it functions.  Anyone able to help?  I'll ask in MUTUAL FUNDS as well; I know people have positions in it...

Anyway, does what I'm saying above make any sense, or am I still badly confused?

I don't know much about these individual bond funds, but these are the thoughts I have after a quick review.

LSBRX - an expense ratio of 0.95 is too high for a bond fund.

HABDX - Bill Gross is considered one of the best bond fund managers out there.  I agree that mortgage-backed assets are undervalued now and treasuries are overvalued.  Smart move on his part to get out of treasuries when they were high and into mortgage-backed securities when they are low.  This fund should do well in the next few years.

WMRIX - minimum investment is $500k

[quote user="KCallie"]

LSBRX - an expense ratio of 0.95 is too high for a bond fund.

[/quote]

It IS high, but that half-point difference between LSBRX and HABDX (for example) has more than been compensated for in the 10-year, 5-year, and 3-year returns (not, however, during the last year, but that is the ONLY year since 2001).

[quote user="KCallie"]

HABDX - Bill Gross is considered one of the best bond fund managers out there.  I agree that mortgage-backed assets are undervalued now and treasuries are overvalued.  Smart move on his part to get out of treasuries when they were high and into mortgage-backed securities when they are low.  This fund should do well in the next few years.

[/quote]

 Good to know I got that one right <g>!

 [quote user="KCallie"]

WMRIX - minimum investment is $500k

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As mentioned in another thread, this limit can be worked around by purchasing through Fidelity.

In short, then, would it be safe to say that LSBRX has decent prospects if the market continues to come back, and HABDX seems to be well-positioned for the future?

I would still worry about funds with subprime exposure.... I don't think we are out of the woods yet.  You might want to check out begbx ....That's where Cheney has put a lot of his money ... guess he has little faith in American bonds.  I wish I had kept my position in BEGBX but I sold  because I was advised that it had some subprime exposure and now the fund is up about 9% since last Sept. or so. You might want to check out funds with tips.

Mrs. S 

[quote user="Racqueteer"]

In short, then, would it be safe to say that LSBRX has decent prospects if the market continues to come back, and HABDX seems to be well-positioned for the future?

[/quote]

LSBRX - try starting a new thread devoted soley to this fund and see what others who know about it think.  If it has significant foreign exposure, the expense ratio may not be out of line.

I think HABDX is well positioned for the future, but it may take a year or more to start to realize those gains.

With the Loomis Sayles and the Harbor (pimco run) you're talking about two different approaches to bond investing and two of the best managers in the business..  I basically, split my money between them.

Gross is more conservative and Dan Fuss is more willing to take advantage of things like emerging markets and high yield when appropriate since he's running a fund with a broader mandate than Grosses.  This also shows up in total returns.  I have added PTTDX to the attached link since it the Gross fund that approximates HABDX but has been in existance longer and so you can compare total returns over a longer period of time in the chart view.  Look carefully at the risk characteristics and other things in the table view.

fund comparison 

Roberta 

Roberta, Lately I think Bill Gross has been more of a risk taker while Dan Fuss has been more conservative. For example, Gross recently had 31.45% of HABDX invested in mortgage-related bonds and only 10% in U.S. corporate bonds, while Fuss had 60% of LSBRX invested in U.S. corporates and 0 (zero) in mortgage-related bonds. HABDX is yielding only 5.05% but enjoyed good price appreciation, while LSBRX is yielding 6.75% and has had nearly flat price appreciation. Incidentally, in the recent Barron's Big Money Poll, 33.3% of the respondents were bullish on U.S. corporate bonds' prospects in the next 6-12 months while 45% were neutral. Gross, Fuss, and nearly everybody else thinks U.S. Treasuries are overvalued (62.2% of the money managers were bearish on them). I think HABDX or Pimco Total Return and LSBRX do make a well-balanced bond "sandwich." It will be interesting to see how Gross or Fuss may respond to S&P's upgrade of Brazil's bonds to investment grade last week. I note that Leuthold Asset Allocation (LAALX) has already staked out a position in Brazilian debt.

Thanks, Roberta and Closer.  It also seems to me that HABDX and LSBRX would be a good combination for pure bond exposure, and an even mix also seems a reasonable position to take.  I'm thinking 10% total in these two with another 60% in balanced funds.  The other 30% in stuff that might give the portfolio a little more pop, but isn't overly volatile (like FAIRX, for example), as well as some additional foreign exposure (JAOSX, HIINX).  What I need now is a nice little (5+%) pullback <g>!

Closer,

My "safe" money is in my sandwhich but I use CEF's to play things like emerging market, junk and mortgage bonds.  I see where you're coming from when comparing Gross and Fuss's recent actions, but I still think Gross is the more conservative.  Although mortgages and particularly colleratized  mortgage debt has gotten all the publicity I believe there has been recent bargains in that area as good stuff tanked along with the caca.  Although emerging market bonds have been on a tear, there's such a lack of real transparency in those countries and exceedingly different attitudes.

Roberta