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An Exciting Bond Fund (Seriously)

If you need to beef up on bonds, take a look at Loomis Sayles Bond fund, which has actually beaten the stock market over the past decade.

There's nothing like a stock-market correction to focus your mind on how your portfolio is allocated. Maybe the relentless rise of the market from last July until recent weeks lulled you into complacency. Perhaps you can't stomach the volatility of stocks. Or maybe you chased the rising market. In any case, it's time to take a look at your portfolio and see if you own enough bonds.

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Bonds don't have to be boring. Consider Loomis Sayles Bond (symbol LSBRX), expertly steered by Dan Fuss and Kathleen Gaffney. Over the past ten years to March 1, Loomis Sayles returned 10% annualized, an average of two percentage points per year better than the return of Standard & Poor's 500-stock index. That's correct. A well-managed, diversified portfolio of bonds beat the stock market over a decade. That's just not supposed to happen.

Fuss and Gaffney achieved this feat not by sticking to ordinary Treasuries or corporate bonds, but by making the most of their flexible, multi-sector mandate, which allows them to scour the globe and purchase those bonds in those currencies that hold out the most promise. In the hands of lesser investors, this latitude could spell trouble. Fuss and Gaffney, who obviously have a fine sense of rhythm, use this freedom to boost returns.

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For example, unlike the U.S., Canada runs trade and budget surpluses, and the world is hungry for Canada's natural resources. So the fund has nearly 20% of assets in Canadian dollar-denominated bonds. Singapore manages its finances punctiliously -- so conservatively, in fact, that there's not much government debt to buy. But the currency looks like a long-term winner, so Fuss and Gaffney purchased General Electric bonds issued in Singapore dollars. Brazil has gotten its economic act together, so the pair are buying high-yielding bonds in Brazilian currency. When the greenback loses value, money invested in foreign currencies get translated into more dollars.

At home, the interest rate spread between high-yield debt and Treasuries has narrowed dramatically, but Fuss and Gaffney still see value in junk bonds because of strong corporate balance sheets and sturdy global economic growth. "We think of ourselves as value investors," says Gaffney, who calls the fund "opportunistic."

In recent years, investors have finally started to focus on foreign allocation in stocks. The case for diversifying your bond portfolio is quite similar: By purchasing foreign bonds, you can lessen economic risks and you avoid tying all of your bond money to the fate of the beleaguered dollar. If you want to raise your international allocation in bonds, Loomis Sayles Bond is a solid choice. It may invest up to 20% of assets in foreign markets, including emerging nations, and an unlimited amount in securities of Canadian issuers.

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