Bond Funds

Investing has been a massive exercise in frustration for millions of Americans over the last decade or so. Two market crashes in 12 years drove many people away from equities. Now key U.S. stock market indexes are at or near record highs again, after a strong 2012 rally that has spilled into 2013. The average domestic stock mutual fund rose 15% last year, the third annual gain in four years. Meanwhile, the hunger for perceived safety has driven interest rates on bonds and other fixed-income securities to record lows.

NEW YORK -- Even as stocks reach new all-time highs, investors continue to pour into bonds. Some on Wall Street have speculated investors would embark upon a "great rotation," pulling their money out of bonds and putting them into stocks as interest rates rise and the economy improves. Rick Rieder, chief investment officer of fixed-income at investment giant BlackRock Inc., believes investors will instead draw from their "tremendous amount" of sidelined cash to invest in stocks.

In the last year, Prudential Financial Inc. has plowed money into lemons and avocados in Ventura County, almonds and mandarins in the Central Valley and strawberries in Santa Cruz County. The insurance giant is just one of many players, including highly specialized investors and large pension funds, that have snapped up California farmland recently. The buying spree has helped push farm and ranch land values to record highs, raising questions about how long the boom might last and what effect it might have on the state's important agricultural sector.

Compromise, defined as the art of getting part of a loaf when the whole loaf is out of reach, comes in many forms. But surely the strangest of all is what comes of trying to compromise with yourself. That's what California's stem cell agency is attempting to do. And judging from its record of pioneering new ways of funding and managing scientific research, you can rest assured that the results will be fraught with interest. What's at issue is how the agency's board wrestles with recommendations for changes in its membership and its authority over the spending of its $3-billion endowment in state bond funds (that's $6 billion, including interest)

Investors pulled a net $4.78 billion from tax-free municipal bond mutual funds in the seven days ended Nov. 17, about 1% of total fund assets, as falling bond prices and rising yields depressed muni fund share values. The outflow, reported Wednesday by the Investment Company Institute, was the biggest in at least three years and followed the turmoil that rocked the muni market beginning in late October. A rise in market interest rates in general and a surge in the supply of new muni bonds from California and other issuers drove prices of some muni bonds down sharply from Oct. 25 through early last week.

It's been the best of times for bond investors. Could it soon be the worst? Bond mutual funds, many of which performed spectacularly last year, churned out solid returns in the first three months of this year, with all bond fund categories posting gains. Individual investors haven't lost their recent love for the sector. After pumping a net $375 billion into bond funds last year as an alternative to the capricious stock market and low-yielding money market funds, they shoveled $54 billion more into bond portfolios in January and February.

Bond mutual fund investors mostly suffered losses in the first quarter, as rising market interest rates cut into the value of older bonds, according to figures released Monday by fund tracker Lipper Analytical Services. Funds that own long-term Treasury bonds were hit hardest. General Treasury bond funds dropped an average of 3.38% for the quarter, Lipper said. Bond results are reported as "total" returns, meaning interest earnings plus or minus the change in the bonds' values.

The house built by bonds, Pacific Investment Management Co., launched three bond funds Tuesday, including an emerging market bond fund. The Pimco Emerging Markets Bond Fund, which is managed by Newport Beach-based Pacific Investment, will be offered to both retail and institutional investors. The fund will require a minimum investment of $1,000, says the Pimco Funds Distribution Co. Pimco has more than $99 billion in assets under management and is one of the largest bond managers in the U.S.

When all is said and done about bond mutual fund owners' miserable first half, more will probably be said than done: Inertia being a strong force, most fund shareholders will probably keep the funds they own. But if the thought of another large decline in your fund's principal value is too much to bear, the variation in bond funds' first-half returns shows that you do have options. Compare, for instance, the relative performance of funds that own long-term U.S.

Securities regulators have told mutual fund companies to disclose more clearly when their "U.S. government" bond funds invest heavily in mortgage- related bonds, such as those from Freddie Mac and Fannie Mae. The Securities and Exchange Commission called for the added disclosure after congressional criticism that investors may be confused by titles and assume that government-bond funds are 100% invested in securities backed by the Treasury.

The summer before Kenna Castillo started sixth grade at Sierra Madre Middle School, education officials ordered demolition of the aging campus to make way for a brand-new school. More than 2 1/2 years later, construction has yet to start, and Kenna is wrapping up eighth grade in a hodgepodge of trailers on a dirt lot. On Tuesday, Pasadena Unified school board members ordered yet another delay for the rebirth of Sierra Madre Middle School after bids for the $22.5-million project came in nearly $9 million over budget.

Investing has been a massive exercise in frustration for millions of Americans over the last decade or so. Two market crashes in 12 years drove many people away from equities. Now key U.S. stock market indexes are at or near record highs again, after a strong 2012 rally that has spilled into 2013. The average domestic stock mutual fund rose 15% last year, the third annual gain in four years. Meanwhile, the hunger for perceived safety has driven interest rates on bonds and other fixed-income securities to record lows.

There's still time for Washington to blow it all up. But barring a "fiscal cliff"-induced calamity, many investors are on track for their best year in stock and bond markets since 2009. That may come as a shock to Americans who have sworn off risk-taking with their nest eggs. Whether this year's gains are enough to tempt them back remains to be seen. Here's a tally of investment winners and losers for 2012 as year-end nears: WINNER: U.S. stocks. The public's continuing distrust of the market was a good contrarian indicator in 2012.

In the last year, Prudential Financial Inc. has plowed money into lemons and avocados in Ventura County, almonds and mandarins in the Central Valley and strawberries in Santa Cruz County. The insurance giant is just one of many players, including highly specialized investors and large pension funds, that have snapped up California farmland recently. The buying spree has helped push farm and ranch land values to record highs, raising questions about how long the boom might last and what effect it might have on the state's important agricultural sector.

The U.S. Securities and Exchange Commission has opened an inquiry into the city of San Bernardino's financial affairs as the city makes its way through a contentious bankruptcy process. The city filed for Chapter 9 bankruptcy protection Aug. 1 after learning in July that it faced a $46-million budget shortfall, making it the third city in California to fail this year. Since then, city officials have traded blame and allegations as they work through a plan to cut costs and return the city to solvency.

NEW YORK - Zambia may not seem like the hottest investment out there. Disease, unemployment and poverty threaten its 14 million people in the small sub-Saharan nation. Zambia also faces an electricity shortage, while its roads and train system fall apart. And the country depends heavily on copper mining to fuel any economic growth. Yet when Zambia debuted bonds on the market last month, it wound up selling $750 million worth of fixed-income securities to investors - 50% more than originally planned.

Investors, buoyed by falling interest rates and skittish over volatile stock prices, are continuing to flee to the relative safety of bonds. More than $2.5 billion poured into taxable bond mutual funds this week. It is the biggest inflow in more than three years and continues a trend that began last month, AMG Data Services said Friday.

Ventura County residents who would like a say in determining how millions of dollars in environmental-protection bond funds might be spent are encouraged to attend a Tuesday night meeting of the Santa Monica Mountains Conservancy and advisory committee. The meeting is to be held from 7:30 to 9 p.m. in the recreation room of the Sycamore Drive Community Center, 1692 Sycamore Drive, Simi Valley.

With interest rates at near-record lows, these have not been good times for investors looking to generate low-risk income. Money-market accounts are paying an average of 0.5%. (Think about that: A $1-million deposit into an average money-market will yield a whopping $5,000 a year.) Even five-year CDs are yielding just 1.5% on average. So, where's an income-hungry investor to turn? One option is high-yield bonds, which are paying about 6% but carry risk that issuing companies may default, eroding the bonds' value.

Compton this week became the latest city in California to find itself on the brink of bankruptcy, and as with others in crisis, much of the blame lies with questionable financial practices. City officials announced that Compton could run out of money by summer's end, with $3 million in the bank and more than $5 million in bills due. A longer-term problem is a $43-million deficit that the city amassed after years of improperly using money from water, sewer and retirement funds to balance its general fund.