What's in Your Bond Mutual Fund?
Interesting article in Friday's Wall Street Journal on all the bond mutual funds that hold subprime mortgages. It's not just the high yield and mortgage bond funds that are holding subprime mortgages. Bond funds are unique and complex. Look at a bond fund's holdings, which is public information available on any mutual fund website, and it's difficult, if not impossible for non-bond professionals to determine what the investments are let along their credit ratings and underlying security.

Investors need to be wary of bond funds. Not because bond funds are bad, but because the fund name may not tell what the fund is holding. Mutual fund company euphemisms don't give investors guidance. Funds with "high yield" in the title are straight forward. "Enhanced," "multi-sector," and "strategic" are just another way to say "high yield." High yield funds are not bad but they can be risky and are not suitable for every investor. Scratch an "income" or "corporate" bond fund and the "junk" won't be too far from the surface. Beware and do your homework, the last five-years' low yield environment has done strange things to managers looking for high income. Know what is in your portfolio.