Nontraditional bond funds aim to avoid losses and earn a return that is uncorrelated with the overall bond market. Such funds deploy several strategies to achieve their objectives, such as investing in alternative sources of fixed income to offset interest rate risk.
Another feature of such funds is that they can hold a significant percentage of their portfolio in cash. Many nontraditional bond funds can be unconstrained as well, meaning they can invest in anything. Let’s take a look at the top ten nontraditional bond funds, in reverse order.
Top Ten Nontraditional Bond Funds
We used the past one-year return data from money.usnews.com to rank the top ten nontraditional bond funds.
10. Spectrum Low Volatility Fund (6%)
Spectrum Low Volatility Fund Investor Class (SVARX) primarily invests in a diversified portfolio of income-producing fixed-income securities. SVARX has returned almost 1% in the last six months and over 12% in the last three years, and it has more than $310 million in total assets. The fund's top two holdings are: Fidelity® Inv MM Fds Government and Alphacentric Income Opportunities Fund Class I.
9. Columbia Mortgage Opportunities Fund (7%)
Columbia Mortgage Opportunities Fund Institutional Class (CLMAX) mainly invests in mortgage-related assets and in debt instruments of any maturity. CLMAX has been in the red over the last six months with a return of around -1%. It's up by almost 7% in the last three years, and it has more than $4.2 billion in total assets. The fund's top two holdings are: Government National Mortgage Association 2.5% and Federal National Mortgage Association 2.5%.
8. PartnerSelect Hi Inc Alt Fund (7%)
iMGP High Income Alternative Fund (MAHIX) uses a mix of strategies it believes offer attractive risk-return characteristics. MAHIX has returned almost 2% in the last six months and almost 6% in the last three years, and it has more than $100 million in total assets. The fund's top two holdings are: United States Treasury Notes 2.625% and United States Treasury Notes 1.75%.
7. Brandywineglobal - Alternative Credit Fundd (8%)
Brandywineglobal - Alternative Credit Fund (LMAPX) uses a flexible, long and short global credit approach. The fund has the flexibility to hedge or increase exposure to certain risks, depending on the subadviser's macroeconomic views. LMAPX has returned -0.25% in the last six months and almost 4% in the last three years, and it has more than $211 million in total assets. The fund's top two holdings are: Federal Home Loan Mortgage Corporation 6.086% and Cd 2016-Cd2 Mortga 4.13148%.
6. T. Rowe Price Dynamic Credit Fund (9%)
Under normal circumstances, T. Rowe Price Dynamic Credit Fund (RPELX) invests in credit and derivative instruments. This fund may invest in debt instruments of any credit rating. RPELX is down by about 1% in the last six months, and it has more than $40 million in total assets. The fund's top three holdings are: 10 Year Treasury Note Future Dec 21, T. Rowe Price Gov. Reserve and Long-Term Euro BTP Future Dec 21.
5. Regan Total Return Income Fund (9%)
Regan Total Return Income Fund (RCIRX) mainly invests in mortgage-backed securities (MBS) with a weighted average life ranging from zero to 10 years. RCIRX has returned 3% in the last six months, and it has more than $89 million in total assets. The fund's top three holdings are: First American Government Obligs X, Harborview Mtg Loan Trust 0.45% and Harborview Mtg Loan Trust 0.59%.
4. Semper MBS Total Return Fund (9%)
Semper MBS Total Return Fund (MUTF:SEMOX) primarily invests in mortgage-backed securities with a weighted average maturity of between one and 10 years. It may also invest in MBS rated below investment-grade. SEMOX has returned over 2% in the last six months and over 1% in the last three years, and it has more than $1.1 billion in total assets. The fund's top two holdings are: Federal National Mortgage Association (OTC:FNMA) 3.34% and Csmc 6.25%.
3. Shelton Tactical Credit Fund (10%)
Shelton Tactical Credit Institutional (DEBIX) normally invests in various credit-related instruments, and it may invest up to 100% of its net assets in any one category of those credit-related instruments. DEBIX has returned almost 1% in the last six months and almost 5% in the last three years, and it has more than $54 million in total assets. The fund's top two holdings are: MURRAY CITY UTAH HOSP REV 0.07% and NEW YORK N Y 0.09%.
2. Touchstone Credit Opportunities Fund (10%)
Touchstone Credit Opportunities Fund (TMARX) seeks an absolute total return and invests a minimum of 80% of its assets in U.S. and non-U.S. debt instruments. TMARX has returned almost 3% in the last six months and almost 8% in the last three years, and it has more than $295 million in total assets. The fund's top two holdings are: Dreyfus Government Cash Mgmt Instl and Altice Financing S.A. 5%.
1. Pioneer Securitized Income Fund (13%)
Pioneer Securitized Income Fund (SIFFX) mainly invests in securitized asset instruments, including MBS, asset-backed securities (ABS) and securitized asset instruments. It may also invest in credit-linked notes (CLNs) and custodial receipts. SIFFX has returned over 3% in the last six months, and it has more than $23 million in total assets. The fund's top two holdings are: Rmf Buyout Issuance Trust 2020-1 6% and VELOCITY COMMERCIAL CAPITAL LOAN TRUST 5.69%.