Alternative bond funds, which are typically touted as strategic-income funds, have been marketed to financial advisers or stockbrokers as a way to avoid the risk of rising interest rates, which concerns bond or fixed income investors. Most alternative bond funds, however, were unable to live up to that potential.
Generally, alternative bond funds have the ability to sell short and invest across a variety of markets in order to lessen the blow of rising rates, but those strategies came up short as the 10-year Treasury's yield shot up 46 basis points in May 2013. On average, the funds finished the month with a 0.46% loss. The largest alternative bond fund, the $26 billion Pimco Unconstrained Bond Fund (PUBAX), lost 0.54%, which was worse than the category's average.
Recent interest rate movements were the first real test for alternative bond funds, and the results were unremarkable. Nadia Papagiannis, a Morningstar Inc. mutual fund analyst, said "the reason for the one-month performance woes essentially boils down to the managers not being hedged against rising rates - the funds are basically long credit with the option to hedge." Ms. Papagiannis added that "most of the time, they're not hedged." So, what advisers in these funds are betting on is that the managers will be able to time the market when it comes time to hedge. "That's hard to do," Ms. Papagiannis said.
Have you suffered losses in alternative bond funds sold to you by your broker? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation. Mr. Pearce is accepting clients with valid claims against stockbrokers who recommended unsuitable investments and unsuitable investment strategies that caused investors losses.
The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.
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