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Funds 308: Bond Funds: Smart Bond-Fund Buying

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1.
Morningstar's fixed-income style box visually depicts a fund's _______.
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Credit quality and duration. While examining total return and expenses is important, our style boxes show the characteristics of the securities that funds own--in this case, duration and credit quality.
2.
Which is likely the better bond fund over the long term?
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Fund B with a 5% yield and a 6% total return. Fund A is losing its principal (its yield is greater than its total return). Fund C is treading water. Fund B is generating more total return than yield and is thereby increasing its income payouts over time. Always focus on total return, not just yield.
3.
The horizontal axis of Morningstar's fixed-income style box measures a fund's ______.
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Interest-rate sensitivity. It measures interest-rate sensitivity as measured by the average duration of all the bonds in its portfolio.
4.
Bond funds with high expense ratios _______.
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Both of the above. To overcome high expenses, bond fund managers generally take on more risk to keep their yields and returns competitive.
5.
Which is least important when evaluating bond funds?
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Their yields. Yield is nothing more than a percentage of principal, so it's more important to examine a fund's total return than its yield. Further, expenses are perhaps the most important factor to consider when investing in bond funds.