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Bond funds bleeding in market meltdown

rcarrick@globeandmail.com

WHAT WE'RE UP TO

Et tu, bond funds? With the stock markets falling, investors will be looking to their bond funds to provide stability in their portfolios. But not all bond funds have delivered.

TODAY'S SEARCH

All but the tiniest bond funds in the Canadian fixed income, Canadian short- and long-term fixed income and high-yield fixed income categories have been ranked according to their returns for the year through Nov. 4. We've also thrown in year-to-date and three-year quartile data, to show how funds rank against their peers. Quartiles divide funds in a category into four groups according to their returns. First quartile is best, fourth is worst.

SO WHAT DID WE TURN UP?

Lots of bleeding bond funds, especially in the high-yield category. You may know high-yield bonds by their nickname, which is junk bonds. These bonds are issued by companies with lower-tier credit ratings that must offer premium interest rates to attract investors. Alongside these higher returns comes higher risk, and that explains why high-yield bonds have fallen sharply in value lately. With the global financial system still in delicate shape, investors are in no mood for extra risk.

Our top loser is TD High Yield Income, which is also the most popular high-yield bond fund in Canada. Among the top holdings of this fund as of its most recent report to Globefund.com were bonds issued by Domtar and Cascades, both of which are in the struggling forest products sector, and Nortel Networks, which needs no introduction as a troubled company.

A few long-term bond funds also made our list. These funds typically hold bonds that mature in 10 years or more, and they're substantially more volatile than conventional bond funds, which generally focus on shorter-term bonds. Long-term bonds offer somewhat higher returns, but they may be too twitchy for investors seeking a low-stress place to put some money.

Real-return bonds, which offer protection against inflation, have also been weak in the recent days. Real-return bonds had a nice little rally going as inflation fears grew late last year and into 2008. Now, with deflation more of an immediate concern than inflation, real-return bonds have lost some appeal.

As for traditional Canadian bond funds, they have done okay this year. The real stars of the broad bond category: global bond funds.

Worst-performing bond funds

Preliminary returns as of Oct. 2008)

YTD
Last% return(as of Oct. 2008)
Net Assets ('000)reported(as ofYTD3-yr %3-yr
Fund nameCategoryas of Sep '08MER DateMERNov. 4)QuartilereturnQuartile
TD High Yield IncomeHigh Yield Fixed Income1,165,54810/31/20081.89-27.84-7.74
Desjardins NthWest Sp Glbl HY Bd-AHigh Yield Fixed Income108,9495/30/20082.13-24.14
Northwest Spec Globl High Yld BdHigh Yield Fixed Income35,7315/30/20082.12-24.14-7.14
Altamira High Yield BondHigh Yield Fixed Income12,8039/30/20082.20-23.94-6.14
National Bank High Yield BondHigh Yield Fixed Income72,0799/30/20081.90-22.54-5.54
Northwest Specialty High Yield BdHigh Yield Fixed Income168,5825/30/20082.07-21.34-3.73
Trimark Global High Yield BondHigh Yield Fixed Income127,8459/30/20081.75-21.24-6.54
BMO Global High Yield BondHigh Yield Fixed Income17,3179/28/20072.10-20.44-7.84
BMO Guardian High Yield Bd Fd-MHigh Yield Fixed Income402,9345/30/20082.10-18.63-6.24
Renaissance Cdn High Yield BondHigh Yield Fixed Income185,7524/30/20081.91-16.53-2.02
Trimark Advantage BondHigh Yield Fixed Income540,2049/30/20081.24-16.03-4.03
RBC Global High Yield-AHigh Yield Fixed Income178,6536/30/20081.70-14.33-1.62
Mackenzie Sentinel Corporate BondHigh Yield Fixed Income538,9186/30/20081.62-12.42-1.21
Brandes Corporate Focus BondHigh Yield Fixed Income25,6429/30/20081.42-11.71
Beutel Goodman Long Term BondCdn Long Term Fixed Incm167,44010/31/20080.71-10.240.04
Standard Life Corp HighYield Bd-AHigh Yield Fixed Income46,22510/31/20082.14-9.82-2.23
Dynamic High Yield BondHigh Yield Fixed Income290,8856/29/20072.28-9.72-0.91
Manulife Corporate Bond FundHigh Yield Fixed Income375,41412/31/20071.68-8.71-1.32
Steadyhand IncomeCdn Fixed Income11,080-8.44
Altamira Long Term BondCdn Long Term Fixed Incm183,5469/30/20081.57-8.14-0.44
AGF Canadian High Yield BondHigh Yield Fixed Income210,2599/30/20081.88-8.010.51
TD Corporate Bond Capital Yield-ICdn Fixed Income139,40610/31/20081.58-7.14
Desjardins Enhanced BondCdn Fixed Income1,705,0015/30/20081.69-7.14-0.44
iShares CDN Long Term Bond IndexCdn Long Term Fixed Incm36,88210/31/20080.35-6.74
CI Signature Corporate BondHigh Yield Fixed Income766,5209/30/20082.30-6.61-0.51
Dynamic Real Return BondCdn Inflation Protctd Fxd Inc50,4146/29/20071.80-6.44-2.74
Sarbit Real Return Bond TrustCdn Inflation Protctd Fxd Inc12/31/20071.34-6.22
SEI Real Return Bond-OCdn Inflation Protctd Fxd Inc225,29010/31/20080.15-6.13-1.61
Altamira Inflation-Adjusted BondCdn Inflation Protctd Fxd Inc4,1349/30/20082.03-6.13-2.63
AGF Global High Yield BondHigh Yield Fixed Income101,3739/30/20081.89-5.910.31

SOURCE: GLOBEFUND

© 2007 The Globe and Mail. All rights reserved.

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