6 Core-Plus Bond Fund Options in the Face of Inflation

 | Feb 13, 2018 | 1:00 PM EST
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Stock quotes in this article:

oniax

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On Wednesday, the U.S. Labor Department is scheduled to release consumer price index (CPI) figures for January. In December, the CPI for All Urban Consumers increased 0.1% seasonally adjusted; rising 2.1% over the past 12 months, not seasonally adjusted. The index for all items less food and energy rose 0.3% in December (SA); up 1.8% over the year (NSA).

No matter the inflation rate for January, experts say there's a bigger question for investors to answer now: How might income-seeking investors deal with concerns about inflation in general?

"We believe," said Scott Lummer, chief executive officer of Savant Investment Group, "a prudent approach is to diversify out of government bonds and bond index funds that must hold a large amount of government bonds to match the index and into 'core-plus' funds, that diversify more heavily into corporate, high yield, and even some emerging market debt."

The reason, he said, is government bonds are more sensitive to potential changes to inflation, whereas other bonds respond to a wider variety of factors, and have a higher yield.

"For example, looking at the past four weeks, a portfolio of core plus funds we recommend to clients had less volatility than a typical index fund, and also had a higher yield," he noted.

According to Investopedia, "core plus is an investment management style that permits managers to add instruments with greater risk and greater potential return to a core base of holdings with a specified objective."

Examples of core-plus mutual funds from Lummer include: JPMorgan Core Plus (ONIAX) , Metropolitan West Total Return (MWTRX) , and PIMCO Total Return (PTTRX) .

Examples of core-plus mutual funds with high grades from Morningstar include: Loomis Sayles Core Plus Bond Y (NERYX) , Western Asset Core Plus Bond I (WACPX) , and Carillon Reams Core Plus Bond I (SCPYX) .

This article was originally sent to subscribers of TheStreet's Income Seeker, a product presenting the world of opportunities in fixed income and dividend stocks. Click here to learn more about Income Seeker and to receive articles like this from Robert Powell, Peter Tchir and others.

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