Investors interested in generating a steady stream of monthly income prefer investing in some bond funds that primarily invest in municipal, government, corporate, and convertible bonds and other debt instruments like MBS (mortgage-backed securities). A bond fund, also known as a debt fund, is a pooled investment vehicle and a better option than buying individual bonds securities. Bond funds are nothing but mutual funds that invest primarily in bonds. Most bond funds focus on certain types of bonds like government and corporate bonds with varying maturity lengths from short-term to long-term and intermediate-term. Other funds that seek high yield put the money in only the riskiest category of bonds. After the economic downturn in 2008, when interest rates were at an all-time low, nontraditional bond funds (NBF) started gaining popularity.
What are nontraditional bond funds?
Investors worried about interest rate risks prefer to invest in NBFs, as became evident after the 2008 financial crisis when the investments tripled between 2011 and 2014, as confirmed by the Financial Industrial Regulatory Authority. Investors preferred NBFs over traditional bond funds to preserve their capital and get higher returns. Small investors consider NBFs safe investments for offsetting interest rate risk while ensuring fixed income.
The specialty of NBFs is that they contain funds that deviate from conventional practice in the world of bond funds. NBFs have another name – nontraditional mutual funds, and many funds refer to identify as portfolios for ‘absolute returns.’ The reason for such naming is that the funds help avoid losses and provide returns that do not correlate with the current conditions of the bond market. Many NBFs are unconstrained funds that invest in anything.
Here is a shortlist of nontraditional bond funds based on the return data of the past year.
Pioneer Securitized Income Fund (SIFFX, 13%)
The primary areas of investment of Pioneer Securitized Income Fund include securitized asset investments like MBS and ABS or asset-backed securities. The second investment line goes to custodial receipts and CLNs of credit-linked notes. With a total asset of more than $223 million in the last six months, SIFFX provided a return of 3%. The fund’s top two holdings include Velocity Commercial Capital Loan Trust (5.69%) and RMF Buyout Issuance Trust 2020 (1.6%).
Touchstone Credit Opportunities Fund (TMARX, 10%)
Touchstone Credit Opportunities Fund aims to provide absolute return and 80% of its investments in assets in the U.S. and debt instruments beyond the U.S. In the last eight years, TMARX provided a return of 8%, and in the previous six months, it was 3%. The total assets held by TMARX are about %54 million. The two top holdings of the fund include Altice Financing S.A. (5%) and Dreyfus Government Cash Management Install.
Shelton Tactical credit Fund (DEBIX, 10%)
DEBIX is one of the nontraditional bond funds that have investments in various credit-related instruments and might invest up to 100% in any one category of the chosen credit-related instrument. In the last three years, DEBIX provided almost 5% return and 1% in the previous 6 months. The top holdings of the fund include New York, NY (0.09%), and Murray City, Utah Hosp Rev (0.07%).
All the non-traditional bond funds could be beneficial for the investors and could help them avoid losses in the best way possible.
