More bonds funds are adding stocks to their portfolio in pursuit of higher yields, but investors are unaware that their portfolios have more risk than did before, CBS MoneyWatch reported. When risks do show up and investors are caught unawares, the publication worries, it can lead to panic selling.

As of June 18, there are 352 mutual funds that are classified by Morningstar as bond funds and that held stock in their portfolio. At the end of last year it was 312, compared to 283 nine months earlier.

An example is Forward Income Builder run by Forward Management[profile], which had 49 percent of its assets in stocks at the end of February. Nearly one year ago the fund had almost none of its assets in stocks. The less-than-vigilant investor is taking on way more risk than he or she was a year ago.

This practice also warps comparison of performance to benchmarks because the bond fund's outperformance of the benchmark could be entirely related to the stocks it holds. 

Edited by: Casey Quinlan


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