It's hard to believe that during the Great Recession following the 2007 financial crisis, there were funds that delivered positive returns. But there were. Among these were capital preservation funds, which do exactly what they imply: preserve your capital—even during economic downturns.
If you’re looking at total returns on an annual basis, the capital preservation funds below are some of the best and manage to deliver in every environment over the past decade. No matter what kind of market lies ahead, bull or bear, it might be prudent to stick to a few capital preservation funds that have the majority of their exposure to investment-grade bonds—just in case.
1. The Great-West Short Duration Bond (MXSDX): High Quality, Low Return
If you’re looking for exposure to investment-grade bonds, then consider the Great-West Short Duration Bond (MXSDX), which invests at least 80% of its net assets in U.S. Treasuries, commercial and residential mortgage-backed securities, asset-backed securities and corporate bonds.
Since its inception date of August 1995, MXSDX has reported a total return of 4.11%. The expense ratio of 0.60% is lower than the category average of 0.81% and there is no minimum investment. These aren’t exemplary numbers, but the objective is to stay safe during volatile times while picking up a little yield. (For more, see Top 4 Investment Grade Corporate Bonds ETFs.)
2. The Prudential Short-Term Corporate Bond (PBSMX): Bigger Investment, Not Better Results
The Prudential Short-Term Corporate Bond (PBSMX) focuses on high current income with capital preservation by investing in bonds of corporations with varying maturities. The effective duration of the fund is generally less than three years.
Since its inception date of Sept 1989, the fund has returned just under 5%. The expense ratio of 0.75% is slightly better than the category average of 0.81% though still high. This is a large fund relative to the others on this list, with net assets of $10 billion and a minimum investment of $1,000. Is it worth the price? You can make an argument either way, but there might be better opportunities available. (For more, see Top 5 Corporate Bond Mutual Funds.)
3. The BlackRock Allocation Target Shares Series S Portfolio (BRASX): No Expense Ratio
The BlackRock Allocation Target Shares Series S Portfolio (BRASX) does not come with an expense ratio (its adjusted expense ratio is 0.01%, effectively zero), which is impressive. However, the performance of the fund and its future potential are more important to note here.
Since the fund’s inception in September 2004, it has yielded 3.67% in returns. Plus, there is no minimum investment, which makes this a low-risk starter capital preservation fund for wary investors. But what is the future likely to hold for BRASX? BRASX invests in the following:
- Commercial and residential mortgage-backed securities
- Obligations of non-U.S. governments and supra-national organizations
- Obligations of domestic and non-U.S. corporations
- Asset-backed securities
- Collateralized mortgage obligations
- U.S. Treasury and agency securities
- Cash equivalent investments
- Repurchase agreements
- Reverse repurchase agreements
- Dollar rolls
That would qualify as a broad array of investment vehicles, and over time investors could try to maximize return on this fund. As far as potential goes expect more of the same, which is low capital appreciation–if any–a decent yield, and relative resiliency to bear market environments. (For more, see Play the Bear Market with Top Bear Market Funds.)
The Bottom Line
If you’re looking for relative resiliency to challenging economic conditions while picking up a little yield, then you might want to consider further researching the funds above. You should not expect a big return. This is more about capital preservation, after all.
Dan Moskowitz does not have any association with any of the funds listed above.