Finding Shelter From the Storm

Stock mutual funds were all wet in 2008. Heres where to invest now to avoid getting soaked.

Robert Rodriguez and Thomas Atteberry were Morningstar’s fixed-income managers of the year in 2008. Not only did their FPA New Income Fund (FPNIX) gain 4.3% last year, it hasn’t suffered a calendar year loss since Rodriguez took over in 1984. “The managers anticipated some of the problems subprime mortgages would cause and increased their cash holdings,” says Jones. “They will take risks such as moving into high-yield bonds when they think that market is attractive.” The portion of holdings in the fund that were replaced with other holdings in 2008 was 32%.
Another fund manager with a reputation for moving his holdings among bond categories and, as a result, making his investors loads of money is Bill Gross. His PIMCO Total Return D Fund (PTTDX) had a similar 4.5% return last year, focusing on issues (mortgage-backed securities, bonds issued by financial firms) that have explicit or implicit support from the federal government, according to Jones. Some mortgage-backed securities (Ginnie Maes, Fannie Maes, Freddie Macs) have federal backing. Bonds issued by financial firms such as Citigroup are thought by some to have federal backing because the government has shown it won’t let these companies go under.

Among the beneficiaries of Gross’ expertise is Tami Corrie, 39, a Covington, Georgia, probation officer who invests in mutual funds through a deferred compensation plan at work. “I was really upset when I saw my investments lose value last year,” she says. “But then I discovered that I did a lot better than other people I know.” Says Lee Baker, CFP, president of Tucker, Georgia-based Apex Financial Services, who advises Corrie on her selections: “Among those funds, Tami has about 35% invested in bonds. Besides 32% in PIMCO Total Return, she has 3% in PIMCO High Yield D Fund (PHYDX). That’s a higher allocation to fixed income than most of my clients Tami’s age, but those holdings served her well in last year’s meltdown.”

Balanced funds. Another option for investors seeking safe harbor is a balanced fund—one that holds stocks as well as bonds. Outside of her deferred compensation plan, for example, Corrie invests in Russell LifePoints Balanced Strategy Fund (RBLSX), which typically has about 40% or more of its assets in bonds and the other 50%-plus in a mix of domestic and international stocks, including real estate securities. This fund had a string of solid years from 2003 through 2007 but lost 30% last year. “The bonds in this fund provide a decent cushion from stock market downturns,” says Baker. “Although it lost money in 2008, it didn’t lose as much as most stock funds. With Russell LifePoints, Tami has some protection with bonds, but also has a chance for gains from stocks. One of the biggest detriments to long-term investing is not having exposure to the stock market when a rally occurs, which might happen in the coming year or so.”

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  • Searching for the $4 stock or less as advertised in the June 2005 mag. Thanks