Summary: While recent changes at the Bond Fund of America may prove successful, is too early to tell, so we recommend looking elsewhere for your core bond fund allocation.
Commentary: Pull up a chart of the Bond Fund of America, and compare it to the average intermediate term bond fund. What should jump out at you is that the fund was crushing the competition up until 2008 when the wheels fell off. To put it simply, this fund completely fell apart during the financial crisis, and has been trying to put the pieces back together ever since.
After the large drawdown the fund took in 2008, its managers dramatically reduced the credit risk of the fund. Unfortunately for them, they did so at a time when the US Government bonds they were investing in were near all time lows. Because of this they have not kept up with other fund’s in their category who were less shy about taking a bit more credit risk.
Currently there are 9 managers of the fund, each of whom focus on a specific area such as government bonds, or emerging market bonds. While this process of dividing up the management of the fund into different slices worked well in the past, it obviously did not work well during the financial crisis. There has also been a lot of turnover of those managers since the financial crisis, which we view as another red flag and reason to stay away from this fund for now.
Short-Term Performance: OK. The Bond Fund of America has underperformed the average intermediate term bond fund by 1.09% over the last 1 year. Over the last 3 years it has underperformed by an average of .44% per year.
Long-Term Performance: Poor. The fund has underperformed the average intermediate term government fund over the last 5 years by an average of 2.24% per year. Over the last 10 years it has slightly outperformed the average by .02%.
Returns Relative to Risk: OK The Bond Fund of America takes an average amount of credit risk for its category. The duration of the fund is also about average at 4.47.
Fees: OK. The Fund charges .60% in annual expenses, which is better than average. However the fund also has a 3.75% load fee. We do not recommend buying bond funds with load fees here at Learn Bonds. To learn more about bond fund fees go here.
Manager Tenure: Poor Lots of changes and turnover recently in the management team of the fund.