Bond funds were largely written off in 2013 as tens of billions of dollars poured out of these stalwart dividend vehicles last year. Fears over rising interest rates helped to put downward pressure on even the best bond funds as fixed-income and aggregate bond indices realized their worst year in nearly a decade. Speculation over the Fed tapering its quantitative easing efforts only added fuel to the inflationary debate as well.
However, the combination of weakening economic data and stock market volatility has led to resurgence in bonds this year that should be a wake-up call for income investors. The realization that tapering has not led to a significant rise in interest rates should be another red flag that bond funds aren’t as dangerous as they have been made to seem.
Many performance chasing portfolios are now overweight stocks and underweight bonds, which could spell disaster if the market continues to show signs of weakening. Investors should instead consider jumping into this list of some of the best bond funds providing both capital appreciation and solid dividend streams this year.