A Contrarian Approach Pays Off for This Bond Fund

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The stock market draws a lot of investor attention, but bonds deserve some love, too. Over the 12 months ending October 31, the Bloomberg U.S. Aggregate Bond Index climbed 6.2%. On a calendar-year basis, the index is on track to post its best return since 2020, thanks in part to relatively high starting yields and solid returns from corporate and securitized debt, particularly mortgage-backed bonds.

Dodge & Cox Income (DODIX), a member of the Kiplinger 25, our favorite no-load mutual funds, has done even better. Over the past 12 months, the intermediate core-plus bond fund returned 7.0%, beating 82% of its competition. A heavy bet on securitized debt — which accounts for more than half of the fund’s assets, double the exposure the Agg index has to those IOUs — helped.

The managers have been barbelling bonds in that sector, balancing short-term, floating-rate mortgage-backed and asset-backed securities with a large allocation to pools of fixed-rate, government-guaranteed residential mortgage-backed bonds.

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"These securitized holdings provide reliable liquidity," the managers said in a recent report, as well as appealing return prospects and low volatility relative to corporate debt.

Contrarians at heart

The fund’s eight managers work as a team, investing mostly in high-quality U.S. debt. A strong price discipline prevails in all decisions, and they’re not afraid to buy when others are running for the hills.

During the April 2025 bond market swoon, for instance, the Dodge & Cox Income managers snapped up discounted corporate debt, including a new stake in Mars, a private maker of snacks and pet-care products.

When they buy, they hold. The fund boasts a low turnover of 14%, which implies an average holding period of about seven years. By contrast, its peers sport an average turnover ratio of 180%, which implies a six-month holding period.

Over the long haul, the fund stands out. Its 3.2% 10-year annualized return beat 89% of its peers and the Agg index. It yields 4.3%.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

Nellie joined Kiplinger in August 2011 after a seven-year stint in Hong Kong. There, she worked for the Wall Street Journal Asia, where as lifestyle editor, she launched and edited Scene Asia, an online guide to food, wine, entertainment and the arts in Asia. Prior to that, she was an editor at Weekend Journal, the Friday lifestyle section of the Wall Street Journal Asia. Kiplinger isn't Nellie's first foray into personal finance: She has also worked at SmartMoney (rising from fact-checker to senior writer), and she was a senior editor at Money.