Tags: go-anywhere | bond | funds | Eigen

Rising US Rates Create Opportunities for 'Go-Anywhere' Bond Funds

By Dan Weil   |   Thursday, 11 Jul 2013 08:03 AM

The recent run-up in interest rates has sent U.S. bond funds reeling, but it creates an opportunity for "go-anywhere" bond funds.

These funds can buy bonds anywhere in the world. They can also short bonds and use derivatives and complicated trades to profit from price moves between different bonds, The Wall Street Journal reports.

William Eigen is manager of the biggest of these offerings — the $17.6 billion JPMorgan Strategic Income Opportunities fund.

Editor's Note:
Economist Warns: ‘Money From Heaven a Path to Hell.’ See Evidence.

Investors would be silly to hang on to standard U.S. bond funds, for that would be a bet that the Federal Reserve won't curb its easing, he tells The Journal. "They're living in Fantasyland. Your average fixed-income investor doesn't seem to understand the whole concept of rates rising."

The go-anywhere funds have been adept at pulling in cash recently. But some experts are skeptical they will succeed, the paper says.

They certainly didn't during the bond rally of previous years, underperforming standard U.S. bond funds.

But in the first half of 2013, non-traditional bond funds returned negative 0.5 percent, besting the 2.3 percent loss of standard intermediate-term funds.

Eigen's fund returned 1.4 percent in that period, and he's bearish on U.S. and emerging market bonds.

Not everyone is expecting a quick blowout in the U.S. bond market.

"At some point, the market expects the Fed will taper," Larry Milstein, managing director of government-debt trading at R.W. Pressprich, tells Bloomberg. "But the Fed won't raise rates any time soon, which puts a lid on how high rates can go."

Editor's Note: Economist Warns: ‘Money From Heaven a Path to Hell.’ See Evidence.

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