In my original article last month on TM suggesting the AlphaCentric Income Opportunities Fund (IOFAX or IOFIX) I provided a chart comparing it to the Barclays Aggregate Bond Index. But for a real test, how has this bond fund performed versus the Standard and Poor’s 500 Index since its inception three years ago?
Source: Fidelity / Author
That’s right – the S&P (the sort-of-chartreuse line) has roared ahead 37.3% over the past three years. A fine return…
However, over this same time frame, IOFIX has returned 39.2% and IOFAX has returned 38.3%.
Lest anyone think “Yes, but the S&P was down 68 points on Thursday” this chart reflects only full-month numbers – through February 2018. March will actually show a more positive disparity.)
IOFAX is the AlphaCentric Income Opportunities Fund “load fund” class. I buy it for clients because, as clients of a Registered Investment Advisor, clients pay no load and no transaction fee. But there is also an Investor Class (IOFIX) that has performed incrementally better over the three years this fund has been in existence. (By the way, the managers of IOFIX / IOFAX have been doing exactly what they do for their mutual fund for quite awhile before they started the fund, managing SMAs — Separate Managed Accounts — for institutions and wealthy individuals.) For brevity, I’ll just use IOFAX when discussing the fund.
Now, if a bond fund can out-perform the S&P 500, it must be as risky as stocks, right? No.
There are “niches” in the bond world that can provide out-sized returns. I won’t repeat my entire “Harry the railroad bond client” from my original IOFAX article, but I strongly suggest you read that story. That true account of the brilliance of an early client of mine is the perfect illustration of how “some” bonds at “some” times can return many times what more common investments can provide. Harry, the 80-year-old retired bankruptcy judge, found his niche and made a fortune.