Best Intermediate-Term Bond Funds for the Long Term

Fixed-income investors face the potential of rising rates in the near future.

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In Pictures: 10 Best Intermediate-Term Bond Funds for the Long Term

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Harbor Bond (HABDX). This fund is run by well-known manager Bill Gross of PIMCO. The fund's duration, which is a measure of interest-rate sensitivity, is a bit higher than most of its peers. That's because Gross is concerned about the threat of rising rates, but he's also not convinced about the strength of the U.S. economic recovery. The fund's investments are spread among a diversified mix of treasuries, corporate bonds, high-yield bonds, and mortgage-related securities. It also holds a small amount of foreign bonds. The fund has returned an annualized 7 percent over the past 10 years. It yields 2.3 percent, and its annual fees are 0.55 percent.

Managers PIMCO Bond (MBDFX). Gross also manages this fund, so it's not surprising that its holdings are mostly in line with Harbor Bond. Says Morningstar: "Those who have bought [the fund] and hung on have been rewarded with some of the best long-term returns of any core bond fund." The fund has returned an annualized 7 percent over the past 10 years. It yields 2 percent, and its annual fees are 0.58 percent.

Dodge & Cox Income (DODIX). Management generally focuses on corporate and mortgage-backed bonds. About 80 percent of the fund's holdings are currently parked in these two categories. Over the past 10 years, the fund has returned an annualized 6 percent. It yields 3.7 percent, and its annual fees are 0.43 percent.

Vanguard Intermediate-Term Investment-Grade (VFICX). Management invests mostly in corporate bonds, both in the United States and abroad. That corporate focus has boosted the fund's performance lately, as corporate bonds have rallied since the depths of the financial crisis in 2008. Currently, the fund's allocation to corporates accounts for about 80 percent of the fund's assets. The fund has returned an annualized 6 percent over the past 10 years. It yields 3.6 percent, and its annual fees are 0.24 percent.

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T. Rowe Price New Income (PRCIX). Quality is the focus at this fund. Management invests in a range of treasuries, and mostly investment-grade corporate and mortgage-backed securities. The fund has a small allocation to foreign corporates and sovereign debt. It tends to lag its peers when junk bonds rally, but its returns over the long term place it among the best in its category. Over the past 10 years, the fund has gained an annualized 6 percent. It yields 3 percent, and its annual fees are 0.6 percent.

Earnest Partners Fixed-Income Trust (EPFTX). Currently, the fund is invested fairly evenly among U.S. agency, corporate, and mortgage-backed securities. Management is also investing in a number of longer-term bonds that are more susceptible to interest-rate hikes, but the fund's yield is higher than many of its peers. Over the past 10 years, the fund has returned an annualized 6 percent. It yields 4.8 percent, and its annual fees are 0.4 percent.

Corrected 2/11/2011: A previous version of this story incorrectly stated the returns for Delaware Diversified Income. The fund has returned an annualized 8 percent over the past 10 years.