Buy These Free-Range Bond Funds

Last month I promised to discuss bond funds whose managers aren’t hemmed in by allegiance to an index or the ultraconservative viewpoint that Treasury bonds and notes are the center of the universe.

- Jeffrey R. Kosnett

As I wrote, I dislike such stolid holdings as total bond market exchange-traded funds and funds designed to replicate the Bloomberg Barclays Aggregate Bond index—which is 42% Treasuries and includes no municipals, high-yield bonds, bank loans or credit card receivables. To me, that approach treats debt instruments primarily as “stuff that isn’t stocks” rather than as a vibrant, investable universe of its own.

I grant that Vanguard Total Bond Market ETF (symbol BND) has a practically invisible 0.05% expense ratio and that during periods of unease about lesser-grade corporate bonds, tax-exempts or foreign I.O.U.s, it can beat many of its actively managed and more creative rivals. In the fourth quarter of 2018, BND returned 1.65%, while DODGE & COX INCOME

(DODIX, YIELD 3.36%) made just 0.27%. But over the years, Dodge & Cox’s broad reach and wise decision-making have given patient shareholders a huge advantage over the index trackers, even given its vast size. The firm has succeeded brilliantly with some of the largest mutual funds the world has ever seen.