Top 10 Best Taxable Bond Mutual Funds

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The following article will provide top 10 list of taxable bond mutual funds. Bond fund is another good way to diversify most investors' investment portfolio. Bond funds are also less volatile than stock funds. Bond funds also can provide monthly income thru distribution or dividend. With the past 2 years of uncertainty and economy crisis, bond fund has been one of the best performing assets for many investors. Many latest articles in the news or magazine have shown, investors have been fleeing and avoid stock fund. They have moved and stashed their investment into bonds. One way to invest in bond is using bond mutual funds. Though investor should be careful, with the bond value is increasing the yield is decreasing and vice versa.

Bond also known as fixed income can be classified into two main categories such as taxable bonds and non taxable bonds. Taxable bond can consist of short term bond, intermediate term bond, long term Bond, Investment Grade Corporate Bond, High Yield Corporate bond (Non Investment Grade corporate bond), Treasury Inflation Protected (TIP) Bond. These taxable bonds can be either domestic bonds or global bonds. The non taxable bond consist mainly the municipal bonds either investment grade municipal bond or non investment grade municipal bond. Non taxable bond mutual funds dividend is usually non taxable. I will provide more details about non taxable bond in my later article. For this article I will focus on taxable bond mutual funds.

If you are interested in domestic stock, international stock and emerging market stock fund, you can check my previous article as well

List Criteria

My list mainly consists of 3 or more star of Morningstar rating and big asset underlying the bond mutual funds. Usually, big asset means lot of confident by investor as well constitutional to invest in these funds. With 3 or more star rating, this means the fund has consistently perform under any market condition and should perform better or at least average compare to many of its index benchmark.

yahoo fund screener view
yahoo fund screener view

The following is the Top 10 list of taxable bond mutual fund:

  1. Pimco Total Return
  2. Vanguard Total Bond Market Index
  3. Templeton Global Bond
  4. Vanguard Short-Term Investment-Grade
  5. Vanguard GNMA
  6. Vanguard Inflation Protected Securities
  7. Dodge & Cox Income
  8. PIMCO Low Duration A
  9. Vanguard Short-Term Bond
  10. Loomis Sayles Bond

Note: The yield information of the fund is as current as October 2010

Top 10 Best Taxable Bond Funds

(click column header to sort results)
No  
Mutual Funds Description  
Ticker  
Category  
Expense ratio  
Morningstar Rating  
Yield  
Total Asset  
Min Invest  
1 yr  
3 yr  
5 yr  
10 yr  
1
Pimco Total Return
PTTAX
Intermediate Term B
0.90%
4
2.74%
252 Bil
$1,000
6.30%
8.95%
7.04%
7.02%
2
Vanguard Total Bond Market Idx
VBMFX
Intermediate Term B
0.22%
3
3.44%
88 Bil
$3,000
7.96%
7.36%
6.14%
6.13%
3
Templeton Global Bond Fund
TPINX
World Bond
0.92%
5
4.12%
41 Bil
$1,000
9.47%
10.92%
11.28%
11.66%
4
Vanguard Short-Term Investment-Grade
VFSTX
Short Term Bond
0.24%
4
3.41%
38 Bil
$3,000
6.65%
5.20%
5.08%
4.89%
5
Vanguard GNMA
VFIIX
Intermediate Government
0.23%
4
3.11%
37 Bil
$3,000
6.97%
7.50%
6.30%
6.14%
6
Vanguard Inflation-Protected Secs
VIPSX
Inflation Protected
0.25%
4
2.68%
32 Bil
$3,000
9.00%
6.54%
5.23%
7.26%
7
Dodge & Cox Income Fund
DODIX
Intermediate Term B
0.43%
4
4.76%
22 Bil
$2,500
8.84%
7.84%
6.53%
6.88%
8
PIMCO Low Duration
PTLAX
Short Term Bond
0.85%
4
1.59%
21 Bil
$1,000
3.52%
5.16%
4.80%
4.56%
9
Vanguard Short-Term Bond
VBISX
Short Term Bond
0.22%
4
2.24%
20 Bil
$3,000
4.82%
5.64%
5.23%
4.96%
10
Loomis Sayles Bond
LSBRX
Multi Sector Bond
0.95%
3
5.42%
19 Bil
$2,500
15.72%
6.17%
7.43%
9.40%
PIMCO Total Return Holding
PIMCO Total Return Holding

1. PIMCO Total Return Fund, PTTAX

The PIMCO Total Return fund is currently the world's largest mutual fund and managed by Bill Gross since 1987. Bill Gross has been known as a bond guru and has published a monthly report about economy or bond prospect etc. I usually read this report to get some idea of economy status. The PIMCO Total Return fund seeks maximum total return by investing in mostly investment-grade bonds, including using derivatives that have produced top-notch returns for the fund. The fund has returned 10.45% over the past year and 10.35% over the past three years. Some of the fund has a front end sales load up to 3.75% and max 12b1 fee of 0.25%. The PTTAX ticker has both of these fees and total expense ratio of 0.94%. Other tickers may not have these fees and has a lower expense ratio fees such as PTTBX, PTTCX, PTTDX, PTTRX, PTTPX, PTRAX, and PTRRX.

2. Vanguard Total Bond Market Index, VBMFX

As low cost index fund, vanguard funds should be very popular to many investors. TheVanguard Total Bond Market Index fund is another way to invest in total bond sector. The fund seeks to track the performance of a broad, market-weighted bond index. The fund employs a “passive management” by lead manager Kenneth Volpert, or indexing investment approach designed to track the performance of the Barclays Capital U.S. Aggregate Float Adjusted Index. The fund has returned 7.96% over the past year and 7.36% over the past three years. There is no front end sales load and max 12b1 fees. The total expense ratio is only 0.22% and is very low compare to other bond funds. Other tickers may have lower expense ratio such as VBTIX, VBMPX, VBTSX and VBTLX.

3. Templeton Global Bond Fund, TPINX

For many years, the Templeton Global Bond Fund has been a model of consistency for bond mutual fund. The fund’s research team scours the globe in search of government bonds with attractive valuations. The objective of the fund is to seek current income with capital appreciation and growth of income. It mainly invests in investment grade bond especially government bonds. The fund is managed by Michael Hasenstab since 2001.The fund has returned 9.47% over the past year and 10.92% over the past three years. Some of the fund has a front end sales load up to 4.25% and max 12b1 fee of 0.25%. The TPINX ticker has both of these fees and total expense ratio of 0.92%. Other tickers for institutional or 401k account may not have these fees and has lower expense ratio fees such as TGBAX, TEGBX and FGBRX.

Vanguard Bond Mutual Fund list
Vanguard Bond Mutual Fund list

4. Vanguard Short-Term Investment-Grade, VFSTX

The Vanguard Short-Term Investment-Grade fund seeks to give investors a fairly safe place to store their money. Short-term bond funds generally have less volatility than their longer-term counterparts. The main strategy of the fund is to invest in a variety of high-quality fixed income securities, mostly in short-term investment-grade securities. The fund is managed by lead manager, Robert F. Auwaerter. The fund has returned 5.08% over the past five years and 4.89% over the past decade. There is no front end sales load and max 12b1 fees. The total expense ratio is only 0.24% and is very low compare to other bond funds. Other tickers may have lower expense ratio such as VFSIX and VFSUX.

5. Vanguard GNMA, VFIIX

The Vanguard GNMA fund investment seeks to provide a moderate level of current income. The fund major investment is in government National Mortgage Association certificates and some other U.S. government obligations securities. The Vanguard GNMA fund is managed by Thomas Pappas and Michael Garrett. It has avoided exotic mortgage-backed fare and they don't make big interest-rate bets. This strategy has proven golden during the latest economic crisis. The fund has returned 6.30% over the past five years and 6.14% over the past decade. There is no front end sales load and max 12b1 fees. The total expense ratio is only 0.23% and is very low compare to other bond funds. Other tickers may have lower expense ratio such as VFIJX.

6. Vanguard Inflation Protected Securities, VIPSX

TheVanguard Inflation-Protected Sec fund invests exclusively in investment-grade bonds, the vast majority of which are TIPS. It looks to protect investors against inflation and realize long-term profits. The fund has returned 5.23 percent over the past five years. TIPS are commonly viewed as a safe haven and TIPS have been a popular destination for nervous investors. In near term or long term, the fund's success will depend on the rate of inflation. TIPS pay fixed interest rates, but the bond's principal is tied to inflation as measured by the consumer price index (CPI). The Vanguard InflationProtected Securities fund is managed by John Hollyer since 2000. There is no front end sales load and max 12b1 fees. The total expense ratio is only 0.25% and is very low compare to other bond funds. Other tickers for institutional or 401k account may have lower expense ratio such as VIPIX, VAIPX.


7. Dodge & Cox Income Fund, DODIX

The Dodge & Cox Income investment seeks a high and stable rate of current income and long-term capital preservation. The fund normally invests in a diversified portfolio of high-quality bonds and other fixed-income securities such as U.S. government obligations, mortgage and asset-backed securities, corporate bonds, collateralized mortgage obligations and others. While generally very consistent in strategy, management is not scared to make some dramatic shifts. In 2008 and 2009, it unloaded some mortgage-backed securities (MBS) and used the extra cash to load up on battered corporate bonds. The fund has returned 6.53% over the past five years and 6.88% over the past decade. ). The Dodge & Cox Income fund is managed by Peter C. J. Lambert since 1989. There is no front end sales load and max 12b1 fees. The total expense ratio is only 0.43%. There is no other tickers for institutional or 401k account.

8. PIMCO Low Duration, PTLAX

This is another PIMCO fund that is actively managed by Bill Gross. The fund will invest in a diversified portfolio of fixed-income instruments of varying maturities, which may be represented by forwards or derivatives such as options, futures contracts, or swap agreements. The fund has returned 5.91% over the past year and 5.96% over the past three years. The PTLAX ticker has a front end sales load up to 2.25% and max 12b1 fee of 0.25%. The PTLAX ticker has both of these fees and total expense ratio of 0.85%. Other tickers for institutional or 401k account may not have these fees and have a lower expense ratio such as PTLBX, PTLCX, PLDDX, PTLDX, PLDAX, PLDAX, PLDPX and PLDRX.

9. Vanguard Short-Term Bond, VBISX

The Vanguard Short-Term Bond Index Fund is a passively managed index fund by Gregory Davis since 2005 that tracks the Barclays Capital 1-5 Year U.S. Government/Credit Bond Index. Its portfolio consists of bonds comprised of investment-grade bonds with maturities of one to five years. This fund has traditionally led to solid performance, like in 2008, when its Bond Index capitalized on the strength of treasuries while avoiding the riskier bonds that were crushed during the downturn. There is no front end sales load and max 12b1 fees. The total expense ratio is only 0.25% and is very low compare to other bond funds. Other tickers for institutional or 401k account may have lower expense ratio such as VBIRX, and VBSSX.

10. Loomis Sayles Bond, LSBRX

Loomis Sayles Bond seeks high total investment return through a combination of current income and capital appreciation. The fund normally invests at majority of assets in fixed-income securities. It invests small assets in lower-quality fixed-income securities and in preferred stocks. This bond fund is managed actively by Daniel J. Fuss (Dan Fuss) since 1991. In the June 2010 edition of Louis Rukeyser’s Mutual Funds, Benjamin Shepherd mentioned “Dan Fuss has been one of the greats of the bond fund world for decades and topping out his category on both a 5- and 10-year basis.” There is no front end sales load, but there is a max 12b1 fee of 0.25%. The total expense ratio is 0.95% which is comparable to average bond fund. Other tickers for institutional or 401k account may have lower expense ratio such as LSBDX, and LBFAX.


Where can I purchase these mutual funds?

Usually you will need mutual fund providers as well as brokerage to buy these mutual funds. Please check the following providers or brokerages:

  • Vanguard – offer various mutual funds that track indexes as well as ETF for free
  • Scottrade – Offer various mutual funds. 3,000 No load & No Transaction Fees (NTF) fund for free and 15,000 mutual funds as well as trading account for $7.00 per trade. You can buy the American Fund family for free and please select no load fund.
  • Fidelity – one stop shop for mutual fund or ETF as well as cash management banking

Disclosure: I have no affiliation with any of these mutual funds. I also have a small position in PIMCO total return in my 401k account and have no other positions in any of other funds. Please do your own research for additional details. Please trade and invest responsibly. Past Performance is No Guarantee of Future Results.


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Comments 2 comments

LillyGrillzit profile image

LillyGrillzit 6 years ago from The River Valley, Arkansas

Ok, I think I am going to get rich long enough to follow your good advice...! Just kidding. Your Financial ideas, would make a successful weekly advice column in an e-journal or something. You are good!! You are the man.


chan0512 profile image

chan0512 6 years ago from Camarillo, CA Author

lol. I wish I could. Thanks for stopping by.

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