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Value Line’s Diversified Bond objective group consists of funds that invest in a mix of corporate and government fixed-income securities in pursuit of current income. The definition is broad by design, as it is meant to include bond funds that, effectively, can go anywhere in the fixed-income space.

As bond funds, the offerings in this category must invest the majority of their assets in fixed-income products. After that requirement, the sky is the limit on what the managers here invest in. Thus, the funds in this category span a broad spectrum from the likes of the religiously driven Ave Maria Bond Fund (AVEFX) to the more traditional Fidelity Total Bond Fund (FTBFX).

The objective includes funds with focuses across the duration spectrum, which allows investors to manage their exposure to interest-rate fluctuations if they so choose. These include so-called ultrashort funds, such as AMF Ultra Short Fund (AULTX), that focus on bonds with durations slightly greater than securities that might reside in a money market fund. The duration focus then moves out to short-term bond funds, like Hartford Short Duration A (HSDAX), followed by intermediate bond funds, such as USAA Intermediate-Term Bond Fund (USIBX), that invest in fixed-income securities that are between short-term bond funds and the type of debt that a long-term bond fund, such as Vanguard Long-Term Bond Index Fund (VBLTX), would own. The latter category of funds is far less common, since many funds in this group are meant to be core fixed-income holdings, such as JPMorgan Core Bond Fund A (PGBOX), which can act as an investor’s sole bond holding with exposure to multiple bond categories and, usually, bonds across the duration spectrum.  

The group even contains funds with a focus on reducing taxation, such as PIMCO Unconstrained Tax Managed Bond A (ATMAX). Of course, there are index offerings within the group, like T. Rowe Price US Bond Index Fund (PBDIX) and Vanguard Total Bond Market Index Fund (VBTLX).  

The Diversified Bond objective group has been a below-average performer relative to the broader bond market over the long term, as measured by the Barclays Aggregate Bond Index. For the 10-year period ended September 30, 2013, the group had an annualized return of 3.8%, while the Index reported an annualized return of 4.5%. For five years and three years, the group had gains of 5.8% and 3.2%, respectively, while the Index reported gains of 5.4% and 2.9%, respectively. Over the trailing 12-month period through September 30, 2013, the Diversified Bond group reported a loss of 0.2%, compared with a loss of 1.7% for the Barclays Aggregate Bond Index. The group has an average Risk Rank of 3, indicating that funds in this group might appeal to many investors looking to limit risk. That said, investors with a long investment horizon might also want to invest in common equities, a group more likely to outpace inflation. 


Fund Name: Toreador Core Fund Retail
Ticker: TORLX
Year-to-Date: 22.94%
Investment Adviser: Toreador Research & Trading LLC 
Benchmarks: Russell 1000 Index; S&P 500 Index
Objective: Long-term capital appreciation
Investment Strategy:
• Invests primarily in equity securities of U.S. and foreign large cap companies of a size similar to those in either the S&P 500 Index or the Russell 1000 Index
• In choosing investments, the fund’s adviser typically selects large cap equity securities that it believes offer superior return potential and may consider, among other factors, a company’s valuation, projected future earnings, growth potential, recent performance, and business strategy
• Seeks to diversify its investments across a broad spectrum of economic sectors in an attempt to reduce portfolio volatility and investment risk without sacrificing potential returns                                                  


Fund Name: America First Income Trends A
Ticker: AFPAX
Year-to-Date: 8.51%
Investment Adviser:  AmericaFirst Capital Management, LLC
Benchmark: Barclays Aggregate Bond Index
Objective: seeks total return as a secondary investment objective.
Investment Strategy:
• Invests in a portfolio of high income securities that may include (but are not limited to) stocks, preferred stocks, convertible preferred stock, convertible bonds, real estate investment trusts, and bonds.
• Applies quantitative modeling techniques that use numerous factors including (but not limited to) dividend yield, price momentum, trading volume, bid/ask spread, and price as compared to simple and exponential moving averages.
• Invests without restriction as to issuer capitalization, maturity, credit quality or whether the security is foreign or domestic.
• May invest in exchange-traded funds with investment objectives and policies consistent with its own.
• May also write (i.e., sell) covered call option contracts.  

Fund Name: PIMCO Commodities Plus Short Strategy Fund A
Ticker: PCCAX
Year-to-Date: 7.93%
Investment Adviser: Pacific Investment Management Company LLC
Benchmark: Dow Jones-UBS Commodity Index Total Return
Objective: Total return which exceeds that of the inverse return of its benchmark, consistent with prudent investment management.
Investment Strategy:
• Invests in short positions with respect to the Dow Jones—UBS Commodity Index Total Return, including commodity-linked derivative instruments backed by an actively managed, low volatility portfolio of fixed income instruments, such that the fund's net asset value may vary inversely with the value of the Index on a daily basis.
• The fund will generally benefit when the price of the Index is declining. When the Index is rising, the fund will generally not perform as well.
• Fixed income instruments owned by the fund may also benefit or detract from its net asset value.
• The fund will maintain short positions through the use of a combination of commodity-linked derivative instruments, including swap agreements, futures, options on futures, commodity index-linked notes and commodity options that provide short exposure to the investment returns of the commodities futures markets.
• The fund may reduce its exposure to Index short positions when PIMCO deems it appropriate to do so.
• Additionally, the fund may purchase call options on Index futures contracts or on other similar Index derivatives in an effort to limit the total potential decline in the net asset value during a market in which prices of commodities positions are rising or expected to rise.
• In addition, the fund may invest its assets in particular sectors of the commodities futures market.
• The average portfolio duration of the fixed income portion of this Fund will vary based on PIMCO's forecast for interest rates and under normal market conditions is not expected to exceed one year. 

In the table below, we have listed 10 top-performing funds through September 30, 2013 from our Fund Advisor database.

 

10 Top Diversified Bond Funds Performance 

 

Fund Name 

Ticker 

% Year-to-date 

Total Return 

% 1-Month 

Total 

Return 

% 3- 

Month 

Total 

Return 

% 6-Month 

Total  

Return 

% 5-Year 

Total 

Return 

Annualized 

Toreador Core Fund Retail 

TORLX 

22.94 

1.84 

5.23 

10.20 

8.61 

  

  

America First Income Trends Fund A 

AFPAX 

8.51 

1.81 

1.46 

0.96 

  

PIMCO CommoditiesPlus Short Strategy A 

PCCAX 

7.93 

2.96 

-2.28 

6.14 

  

Frost Diversified Strategies A 

FDSFX 

7.11 

1.64 

1.85 

1.74 

  

Thrivent Diversified Inc. Plus A 

AAHYX 

6.25 

1.58 

1.28 

0.99 

9.33 

Oppenheimer Senior Floating Rate Fund A  

OOSAX 

4.34 

0.23 

1.30 

1.92 

7.71 

The Osterweis Strategic Income Fund 

OSTIX 

4.59 

0.57 

1.86 

1.68 

8.59 

Thornburg Strategic Income Fund A 

TSIAX 

3.89 

1.79 

1.97 

0.70 

9.31 

Putnam Diversified Income Fund A 

PDINX 

3.91 

-0.68 

0.64 

0.27 

8.31 

Wells Fargo Adv Divers Inc Blder Fund A  

EKSAX 

3.61 

1.66 

1.33 

-0.91 

9.05 

Diversified Bond Objective Group 

  

-1.07 

0.91 

0.72 

-1.70 

5.70 

  

  

At the time of this article's writing, the author did not have positions in any of the funds mentioned.