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M*: Are There Stocks In Your Bond Portfolio?

TedTed
in Fund Discussions
FYI: Some bond fund investors received an unpleasant surprise in the fourth quarter of 2018, when stock market losses stung their bond portfolios.

For the most part, meaningful equity stakes in bond funds are rare. Most bond fund managers stick to bonds, or hold only tiny positions in common stock that might come from a bankruptcy restructuring, or from the conversion to equity of a convertible bond. Of the 280-plus taxable-bond funds that we rate, about one in 10 held more than a couple of percentage points in stocks as of its most recent portfolio, and only a handful held more than a five-percentage-point stake.
Regards,
Ted
https://www.morningstar.com/articles/908355/are-there-stocks-in-your-bond-portfolio.html

Comments

  • Old_Skeet
    edited January 2019
    Yes indeed there are some stocks held within some of the bond funds that I own and the article makes note of a few of them. They are NEFZX and LBNDX.
  • hank
    edited January 2019
    RPSIX is not a bond fund - as I understand the term commonly to mean. Never has been. The Prospectus (at last check) allows the fund to commit anywhere from 5-25% of its assets to Price’s Equity and Income fund (PRFDX). If you don’t already know, the latter is a stock fund. Normally that commitment is in the 10-15% range. Additionally, RPSIX invests in HY, EM and international bond funds. Technically, those constitute various classes of bonds - but to lump that type of broadly (and aggressively) diversified bond portfolio under the heading “bond fund” is taking an awful lot of liberty with the term IMHO.

    So what is RPSIX? It is a diversified income fund. Always has been. Probably always will be. I get questions re whether it’s a good investment. Hard to answer. Instead of looking at its (somewhat lackluster) chart, I prefer to look at the actual holdings and percentages committed to various underlying funds. If I like most of the holdings and can see how they strengthen my overall portfolio in some way, than I don’t give a hoot how the fund performed in the recent past.

    Hope the author of this dubious article has been more accurate in attaching that “bond fund” label to the other funds he’s discussing. To read his headline / opening one would think the fund companies were trying to pull the wool over investors’ eyes. In the case of T. Rowe Price, anyway, that’s not the case.


    Qualifier: When I looked at T. Rowe’s “Historical Performance” link, RPSIX did in fact surface under the category “Bond Funds.” I think it would be better placed under “Allocation Funds”. If the author only looked at the category list and didn’t bother to read the fund’s “Prospectus” - than I can see why he believed it to be a bond fund.

    Here’s the link to that list: https://www.troweprice.com/personal-investing/mutual-funds/historical-performance.html
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