My All-Time Favorite Bond Funds

Bonds are immensely popular these days, as shown by surging net inflows to mutual funds and exchange-traded funds. Except for brief panic selling last fall, we’ve seen an unremitting flood of new and reinvested money into bonds since I can’t remember when—nearly enough to launch a new Vanguard Total Bond Market fund, the largest of ’em all, every six months.

Yet I don’t think the rush into bond funds is excessively exuberant. An abundance of money pursuing a thin supply of any commodity props up its price. That includes bonds, which, with the exception of Treasuries, are scarce. And even T-bonds are subject to the laws of the markets; they are likely to be supported by high demand, too.

The case for funds. I often recommend buying individual bonds. But funds are easier and quicker for most of us to navigate and establish as core holdings. And bond pros earn their pay.

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Few stock-fund managers match or beat the returns of Standard & Poor’s 500-stock index. But S&P finds that for the past five years, most fixed-income managers outdistanced their closest-corresponding Bloomberg Barclays index (although high fees can negate this edge). The best teams of managers, traders and analysts exploit the opportunities that arise when passive index funds or other investors sell or rebalance their bond holdings. Bond index funds are also more vulnerable to credit downgrades and defaults than are actively managed funds with choosy analysts.

All of the following funds are worthy of your money and your trust. Ignore their size. Unlike stock funds, bond funds rarely refuse new accounts or limit contributions—and are rarely the worse off for it. Some have sales charges, but those are avoidable via certain brokerages. (Returns and yields are through June 14.)

Baird Core Plus Bond (symbol BCOSX, yield 2.82%, 1-year return 7.4%, 5-year return 3.2%)

This fund is the archetype of a low-cost, expertly managed, rock-solid core fund. Many of its key people have nearly 20 years of tenure.

Dodge & Cox Income (DODIX, yield 3.45%, 1-year return 6.7%, 5-year 3.2%)

On occasion, the veteran managers take more credit risks than other shops, including Baird. I don’t mind that (though you might, if your risk tolerance is low) because striving for extra yield in middling-quality corporate bonds and mortgages is a winning approach in a moderate-growth, low-inflation economy, such as the current one.

DoubleLine Flexible Income (DLINX, yield 4.65%, 1-year return 4.4%, 5-year 4.1%)

You can hardly go wrong with any DoubleLine fund, but I like this one because it uses a low-duration strategy—meaning it’s less sensitive to interest-rate swings—and still generates a high yield and high returns. There are many low-duration funds but few that pay out as much without taking on extra risk. DoubleLine’s Core and Total Return funds are also terrific.

PGIM Total Return (PDBAX, yield 2.86%, 1-year return 8.3%, 5-year 3.7%)

PGIM funds benefit from an adherence to the lower-for-longer interest-rate philosophy and the resources of the Prudential Insurance organization. There are other excellent PGIM funds, too. Total Return is available with no transaction fee, and with its load waived, at Fidelity and other brokerages.

Pimco Income (PONAX, yield 3.57%, 1-year return 6.5%, 5-year 4.8%)

When dethroned “bond king” Bill Gross left, the world learned Pimco was no one-man operation. The three honchos who lead this diversified fund invest in everything from mortgages to packaged loans to foreign markets. I hesitate to praise just one Pimco fund and gloss over their ETFs, but this is the flagship.