Bond Funds

It's not easy these days to find an investment offering a decent yield and protection from losses caused by rising interest rates. Hence the soaring popularity of mutual funds that buy adjustable-rate corporate debt. Known as bank-loan or floating-rate funds, the group has posted two years of strong returns, which have continued in 2011. Its 2% average gain in the first quarter was second-highest among bond-fund categories, trailing only a 3.7% average total return notched by junk-bond portfolios, according to fund tracker Lipper.

The Los Angeles Community College District will set up an independent citizens panel to review "the very serious issues" plaguing its $5.7-billion campus rebuilding program, Chancellor Daniel LaVista has announced. The construction program "must be reassessed in an effort to resolve legitimate issues on the remaining projects, complete future projects effectively and demonstrate the district's commitment to program integrity," LaVista wrote in a newsletter sent late Monday to college faculty and staff.

Three years after a supposedly safe bond fund plunged in value, Charles Schwab Corp. agreed to pay $119 million to settle government allegations that it misled investors about the risks of the portfolio's mortgage-related holdings. The Securities and Exchange Commission's suit against Schwab, which was filed as well as settled Tuesday, depicts a microcosm of the mortgage meltdown and financial crisis, with plenty of blame to go around. Regulators had expressed concern as early as 2004 that Schwab's disclosures about its YieldPlus bond fund were insufficient, but the resulting changes weren't enough to warn investors in time.

Investors who thought they couldn't lose money in bond mutual funds got a wake-up call last quarter. Rising longer-term interest rates meant lower market values for existing fixed-income securities, triggering widespread declines in bond fund share prices. That produced the first notable losses for many bond investments since the fourth quarter of 2008, when most financial markets were in meltdown mode. But the losses last quarter were heaviest in funds that owned the longest-term bonds and tax-free municipal issues.

Withdrawals from mutual funds that invest in municipal bonds accelerated last week as prices of the securities fell further. Investors cashed out a net $4.85 billion from muni funds in the seven days that ended Dec. 15, up from $1.26 billion the week before and the biggest sum pulled out since munis hit the skids in early November, the Investment Company Institute said Wednesday. Investors now have withdrawn a net $14.2 billion from muni funds since Nov. 3, or about 2.8% of assets.

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.

The stock market got some revenge in the third quarter ? but the bond market still got the money. Share prices rebounded sharply from their spring losses as fear of another recession eased and the Federal Reserve pledged to pump more cash into the economy if needed to bolster growth. The average domestic stock fund surged 10.5% in the three months ended Sept. 30, according to Morningstar Inc. Foreign stock funds posted even bigger gains. But many investors haven't been riding the equity market's latest wave.

For a nation that supposedly has forsaken stocks, we're still shoveling a lot of cash in that direction. In fact, despite the reams that have been written about Americans' torrid romance with bonds, stocks continue to get the bulk of the money that investors are committing to mutual fund portfolios. In the first half of this year, gross purchases of stock funds totaled $724 billion, 29% more than the $561 billion that flowed into bond funds, industry data show. Where's the purported bond mania at stocks' expense?

Ousted last December after 24 years at TCW Group, star bond fund manager Jeffrey Gundlach wasted little time setting up a rival money management firm with most of his former TCW teammates. But his DoubleLine Capital has fallen short of attracting the assets that Gundlach predicted, despite the strong performance of his new flagship mutual fund. Gundlach had overseen about $70billion in bonds at TCW. Soon after TCW fired him, shocked investors quickly pulled about $25 billion from the company.

DoubleLine Capital, the L.A. money management firm founded by ex-TCW Group executive Jeffrey Gundlach in December, said Friday that its flagship bond mutual fund had accumulated $1 billion in assets in less than three months. The milestone may help Gundlach as he seeks to attract investors who had invested with him at TCW before the firm ousted him in a bitter breakup Dec. 4. The DoubleLine Total Return Bond fund has been the fastest-growing new mutual fund of 2010, according to Morningstar Inc. The fund, which invests mostly in mortgage-backed securities, was launched April 6 and is up 7.4% since then, according to Bloomberg News data.