May 30, 2013 / 3:37 PM / 4 years ago

FUND SCREEN-Income funds load up on stocks

By David Randall
    NEW YORK, May 30 (Reuters) - Bond fund managers have taken
an unusual approach to the prospect of rising interest rates:
buy stocks instead. 
    Some 352 mutual funds classified as bond funds hold some
stocks, the highest level in at least 18 years, according to
Morningstar. The move is partly a reflection of the U.S. Federal
Reserve's bond-buying stimulus program, which has pushed the
yield on the 10-year Treasury below the 2.1 percent average
dividend yield of companies in the Standard & Poor's 500 stock
index. 
    Yet some funds have taken to loading up on stocks even more.
The $25.7 million Ancora Income fund, for instance, has 83.9
percent of its portfolio in equities, the highest of any bond
fund, according to Lipper. The move is intended to protect
against rising inflation, said Jim Bernard, the firm's director
of fixed income, in a January note to investors. 
    The fund's prospectus allows its managers wide leeway in the
construction of the portfolio, including the purchase of
preferred shares. This class of stock comes with fixed dividends
that essentially make them trade like bonds, though they do not
offer the same protection to investors should a company go
bankrupt. 
    The strategy could be tested in the coming weeks and months,
as analysts expect the Fed to begin paring its stimulus program.
But not all stocks will offer protection from bond market
selloffs. Last week, utility and telecommunications shares, two
high-yielding defensive sectors that have been popular
alternatives to bonds, also fell. 
    Here are the 10 bond funds with the largest percentage of
their portfolios in stocks, according to Lipper. 
    
 Fund name   Ticker      Assets      Equity      3 year
                                     percentage  annualized
                                                 performanc
                                                 e
 Ancora      ANICX       $25.7 mil   83.9        8.4 %
 Income                                          
 Nuveen NWS  NWQAX       $20.5 mil   83.5        13.2 %
 Flexible                                        
 Income                                          
 First       FPEIX       $269.8 mil  78          N/A
 Trust                                           
 Preferred                                       
 Securities                                      
 and Income                                      
 Advisory    ADVNX       $128.1 mil  74.6        N/A
 Research                                        
 Strategic                                       
 Income                                          
 Destra      DPIAX       $41.8 mil   72          N/A
 Preferred                                       
 & Income                                        
 Securities                                      
 AmericaFir  AFPUX       $30.1 mil   56.3        N/A
 st Income                                       
 Trends                                          
 Forward     AIAAX       $21 mil     56.2        9.3 %
 Income                                          
 Builder                                         
 Touchstone  MXIIX       $301.5 mil  41.9        9.4 %
 Strategic                                       
 Income                                          
 Principal   PPSIX       $5.6 bil    37.1        12.8 %
 Preferred                                       
 Securities                                      
 Cohen &     CPXIX       $2.4 bil    36.2        15.2 %
 Steers                                          
 Preferred                                       
 Securities                                      
 & Income                                        
                    Source: Lipper, Morningstar

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