Why Bonds?
Over the past few years, in the wake of the bear market in stocks, investors have shown new interest in bonds and bond funds.
The largest and best-known pension and endowment funds have always relied on bonds for a significant percentage of their assets. They do so because bonds can provide a portfolio with real returns above inflation, and help temper the ups and downs associated with pure equity investing.
In fact, Mosaic's portfolio managers have earned a national reputation for bond management. Their goal is to provide benchmark or better returns at a risk level below their benchmarks. While this sounds like having your cake and eating it too, managers can achieve this goal by carefully monitoring the outlook for interest rates and shifting strategy accordingly.
Bonds come in various shapes and sizes. The main categories are:
Government bonds are issued by the federal government and its agencies. These bonds are considered less risky than corporate bonds, and as a result pay less income. |
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Corporate bonds are issued by companies to raise revenues, often for capital expansion or projects. Investors are typically willing to lend money to higher quality companies at a lower rate than to companies considered to be less financially sound. |
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High Yield bonds are issued by companies that have less financial stability, and so must pay a higher rate of return to attract investors. |
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Tax-Free or municipal bonds, are issued by states, counties and cities, and provide a revenue stream that is free from federal tax, and usually state tax in the state in which they are issued. This tax advantage allows the issuers to attract investors even though they pay a lower rate of return than government or corporate bonds. |
Bonds (in a nutshell):
When you purchase a bond or bond fund, you are basically loaning money to a company or the government. In return, they promise to provide you with regular income payments prior to repaying your loan at a specified future date. While interest payments are generally fixed, the actual value of the bond varies with changes in interest rates. When interest rates go up, existing bonds with lower rates are less attractive, so bond valuations generally go down. Active bond managers, like Mosaic's, carefully monitor interest rate and economic trends and adjust portfolio holdings to take advantage of this price fluctuation.
Our Approach to Bond Investing
Mosaic bond funds concentrate on higher-rated, investment grade bonds. We do not stray from a fund's core investment objectives by adding risky or exotic securities in hope of achieving higher returns. Madison Mosaic Core Bond Fund is the only Mosaic fund with potential exposure to lower grade bonds, although this exposure is limited to 35% of the fund's assets.
Using numerous screens and economic indicators we track bond market and interest rate trends. Our analysis includes the monitoring of interest rates, inflationary pressures, Federal Reserve policy, economic momentum, liquidity conditions and the psychology of the market. Based upon these conditions we actively manage the duration of our portfolios, seeking to shorten maturities when rates are rising to limit the impact of the accompanying decline in bond prices, and lengthening maturities when rates are falling to capture accompanying price appreciation.
Mosaic Government Fund
Mosaic Government provides investors with monthly dividends by investing in bonds and other securities issued or guaranteed by the U.S. Government. The fund will hold bonds of various duration, with an eye on both current yield and total return over time. The result is a fund designed for investors who seek regular income from investments that have the added security provided by government debt.
Government backing applies to timely repayment of principal and interest and not to shares of the fund.
Mosaic Core Bond Fund
Mosaic Core Bond provides investors with regular, monthly income through investments in a potentially wide range of bonds. The fund will generally invest in government or corporate securities with an average maturity of 10 years or less. At least 65% of its assets must be held in investment grade bonds, while up to 35% of assets can be invested in bonds rated as low as "B." The result is a fund designed for investors who seek regular income from an actively managed bond fund that seeks the best risk/return profiles from a wide universe of intermediate bonds.
Core Bond Fund is the only Mosaic fund with exposure to lower grade bonds, and this exposure is limited to 35% of the fund's assets.
Mosaic Institutional Bond Fund
Mosaic Institutional Bond Fund is a high-quality government and corporate bond fund with a higher initial minimum investment ($50,000) and lower total expense ratio. It is designed to provide regular income through investments in an actively managed diversified group of bonds which will typically include both government and investment-grade corporate issuance of intermediate duration.
