For investors seeking a steady source of income along with safety of capital invested, bonds become a natural choice. The need to reduce risk via diversification necessitates holding bonds from different categories and classes. This may become an expensive affair, due to the costs of acquiring such instruments individually. Diversified bond funds are thus an affordable and convenient option for such investors. The presence of securities from different categories also means that losses from any instrument only has a partial effect on the fund’s fortunes.

Below we will share with you 5 top rated diversified bond funds. Each has earned a Zacks #1 Rank (Strong Buy) as we expect the fund to outperform its peers in the future. To view the Zacks Rank and past performance of all diversified bond funds, then click here.

MainStay Diversified Income A (MASAX) seeks current income and substantial overall return. At least 65% of its assets are invested in domestic and foreign debt or related securities. It may also utilize up to 30% of its assets to purchase common and preferred stock, rights and warrants. The diversified bond fund has a five year annualized return of 5.17%.

The diversified bond fund has an expense ratio of 1.27% compared to a category average of 1.15%.

Delaware Optimum Fixed Income A (OAFIX) invests at least 80% of the fund’s assets in fixed-income securities. It purchases a wide range of government securities, corporate debt, municipal and asset-backed securities. The diversified bond fund has a three year annualized return of 7.47%.

Paul Grillo is the fund manager and has managed this diversified bond fund since 2003.

Baird Core Plus Bond (BCOSX) seeks an annual rate of total return which is higher than that of the Barclays Capital U.S. Universal Bond Index. The fund invests heavily in domestic securities issued by the government or corporate entities, but may also purchase foreign securities. Up to 20% of its assets may be invested in securities rated below investment grade. The fund returned 16.28% over the last one year period.

As of March 2010, this diversified bond fund held 372 issues, with 7.23% of its total assets invested in United States Treasury Bonds 6.25%.

Pioneer Strategic Income A (PSRAX) invests a large portion of its assets in debt securities. It focuses on acquiring debt securities issued by the U.S. government and related agencies, domestic and foreign corporate debt and asset backed securities. The fund has a ten year annualized return of 8%.

The diversified bond fund has a minimum initial investment of $1,000 and an expense ratio of 1.17% compared to a category average of 1.15%.

John Hancock Strategic Income A (JHFIX) seeks high current income. It invests the majority of its assets in government and corporate debt securities issued from abroad. The fund also purchases domestic government and high yield bonds. It may also invest in other types of debt securities. The diversified bond fund has a three year annualized return of 6.96%.

Daniel Janis, III is the fund manager and has managed this diversified bond fund since 1999.

To view the Zacks Rank and past performance of all diversified bond funds, then click here.

About Zacks Mutual Fund Rank

By applying the Zacks Rank to mutual funds, investors can find funds that not only outpaced the market in the past but are also expected to outperform going forward. Learn more about the Zacks Mutual Fund Rank at http://www.zacks.com/funds/mutualfund/

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