Bond Fund Debacle

A recent article in PLANSPONSOR magazine provides a stunning real world example that illustrates the pitfalls of owning a bond fund.

It involves 2 institutional commingled trust funds offered by State Street Global Advisors (SSgA) that were deemed "conservative" investments managed by an investment firm that is "risk averse."

The investments in question are the SSgA Intermediate Bond Fund and Government Credit Bond Fund.

According to a complaint filed in the District Court for the Southern District of New York against SSgA, that in July and August 2007 the Intermediate Bond Fund lost 12% (while its benchmark index rose 3%) and the Government Credit Bond Fun lost a whopping 25% during those two months (it's benchmark index rose 2%).

A few month ago we wrote about why you should never buy a bond fund.

In a nutshell, a bonds place in a portfolio is to provide certainty. Bond funds deprive investors of that certainty.

The SSgA example shows us that when you need a conservative, safe, risk averse investment that brings some certainty to your portfolio, lay of the bond funds and stick with good old US Treasuries.

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Never Buy a Bond Fund

Bonds should be purchased to provide certainty. Bond funds
deprive investors of that certainty. Individual bonds enable
investors to plan effectively where the outcomes are known.
Bond funds are designed for the fund sponsor to make a lot of money at the expense of the investors. Blue Ocean Portfolios uses only US Treasury bonds that provide certain and predictable outcomes for investors.

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