Money Central Logo Money Central

UNTIL RECENTLY, BOND-FUND MANAGERS could get away with one of the biggest shortcuts in investing: skimming over the finer points of each bond they put in their portfolios. Bond research, also known as credit analysis, is supposed to answer a basic question about every bond: How likely is a company (or country or pool of mortgage holders) to pay back its debt with interest? For years many investors didn’t notice or care that fund managers couldn’t always answer that question, because bond funds rarely lost money. But during the financial meltdown, the difference between a bond
Read More
fund earning 5 percent and losing 35 percent, analysts say, often rested on whether the fund managers did their own research. “It’s hugely important, and no one realizes it,” says Lawrence Jones, the head of fixed-income analysis at Morningstar.
The problem, some say, is that too many bond funds essentially have let credit-rating agencies do too much of their bond research for them. The agencies, including Standard & Poor’s, Moody’s and Fitch, judge the creditworthiness of the debt issuer and assign the bonds a rating. But critics have contended the ratings agencies’ research is too slow, flawed or both. Exhibit A: When the credit markets crashed, even many highly rated bonds (including Lehman Brothers and AIG bonds) tanked, taking funds that had leaned too heavily on the published ratings right along with them. For their part, the agencies say their ratings reflect a company’s most recent financial situation and are not intended to be forward-looking.
Having an in-house research team doesn’t guarantee success, but many top-notch bond firms believe it helps keep them a step ahead. Pimco (LTPZ), which manages $841 billion, boasts that it doesn’t even subscribe to the published ratings, instead relying on its 60 analysts. So far, so good. Pimco managed to sidestep the worst of the mortgage crisis, in part because it dispatched analysts to interview mortgage brokers and real estate agents nationwide. Similarly, the Harbor High-Yield Bond fund (HYFRX) has benefited from the expertise of its subadviser, Shenkman Capital, a group dedicated to bonds issued by companies most at risk of bankruptcy. The fund won’t invest until an analyst has met with management, scoured the legal documents that establish who gets paid and how much if a company goes under, and written a 15-page credit analysis. Finally, no manager can buy a bond until the Shenkman credit committee gives approval. Other firms, such as BlackRock (BLK) and TCW (TSI), are known for their research groups, and T. Rowe Price (TROW) has a noted emerging-markets debt team.
Of course, no fund manager will cop to leaning on research from ratings agencies. To find an independently minded bond fund, experts suggest comparing a fund’s holdings against the index. The closer a fund is to its benchmark, the more likely the managers are to be using the consensus research rather than forming their own opinion.
SMARTMONEY ® Layout and look and feel of are trademarks of SmartMoney, a joint venture between Dow Jones & Company, Inc. and Hearst SM Partnership. © 1995 - 2009 SmartMoney. All Rights Reserved.

More and more economists are talking about how they think the economy actually grew in the third quarter. Unfortunately, it might be hard to find evidence of that once companies start reporting their latest quarterly results.
According to Kiplinger , “Folks who represent the food and beverage industry are fighting an all-out war against a federal excise tax on sodas, fruit drinks, sports drinks and other sugared beverages. They are determined to make sure that Congress doesn’t approve such a tax to help offset the cost of health care reform legislation, and they even launched an advertising blitz costing a reported $2 million to make their point. There’s just one problem: No major health care bill pending in Congr
Super Bowl Champion Jerome Bettis, MMA Champion Tito Ortiz, Playmate… Online Qualifiers Face Brutal Line-up of Challengers as They Play Poker’s Hottest TV Game Show, the Million Dollar Challenge on FOX Source: PokerStars On Thursday October 1, 2009, 5:33 pm EDT LOS ANGELES, CA– - You won a free tournament on , defeating thousands of challengers. Sunday Forum: Last times W e would meet nearly every morning in the summer. No text messag
North Korea said it was ready to return to international talks on ending its nuclear weapons programme but demanded negotiations with the US first
The ISM Non-Manufacturing Index indicates industry expansion for the first time in 11 months.
by Giovanni Fetz The potential real estate in downtown Dallas Condos The world suffered from the effects caused by the economic recession yet, downtown Dallas condos continues to cushion and prevent any further damage. Known as a business hub, Dallas streets and office buildings become desolate after office hours. But through the efforts of developers such as One Arts Plaza, downtown Dallas will never be the same again and life will be more worthwhile. The City of Dallas and what is offers t
Many people today are struggling with their home mortgages. In fact, the foreclosure rate is at an all time high and the end doesn’t look as if it is in sight yet. If you are having trouble making your monthly house payment, then you may benefit from the loan modification program. President Obama and Congress has set aside $75 billion to help between 7 and 9 million homeowners who have a home payment that has become out of their reach. The program will target two different sets of circumstanc
A solid performance for U.S. and international equity funds in the third quarter extends the gargantuan gains since March.
Dr. Francis S. Collins is the new National Institutes of Health director.The new head of the National Institutes of Health rejects the notion that faith and science conflict in substantial ways.