Nontraditional bond funds didn't quite deliver on their promise of being built for now, and "shining" when rising interest rates betrayed other bond funds, Morningstar's John Rekenthaler writes. Some of these bond funds wrote the ability to adopt a negative duration into their prospectuses, but if they did indeed do so, Rekenthaler writes, then why did some of the funds struggle this summer, when they should have thrived?

Rekenthaler says not a single nontraditional bond fund had positive returns in June, though the BTS [profile] Tactical Fixed Income came closest with a drop of 0.10 percent. The fund fell more than 1 percent in May and August, however, Rekenthaler notes.

That's not to knock the bond fund category completely, but it's selling point isn't the ability to dodge interest rates, Rekenthaler says. He writes, "And while none of the funds caught the recent bear market just right, several made very good money during the bond bull market and have posted excellent three-year gains. There are plenty of reasons to like this category's better entrants."

To read more, click here.  

Edited by: Casey Quinlan


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