Securities Lawyers Blog
Bad may be a little strong. There are not magic signs to determine if you have a bad bond fund. However, as Morningstar explains, there are red flags that investors can look at to determine if they are in a fund that is likely to fail. If a fund has multiple red flags, chances are it is best to leave that fund alone.
High Yield
Uncharacteristically high yields generally spells trouble for a fund. Yield is generally defined as a snapshot of how much income a fund is paying as an annual percentage of its net assets under management. Just remember there is no such thing as a perfect investment or a free lunch. There isn’t any extra source of return that does not have some corresponding risk. Sometimes that risk takes the form of credit risk, sometimes liquidity risk and sometimes it is simply risk of wild fluctuations in price. Whatever the the risk, it exists. Try not to invest in only the highest yielding funds. Try to determine how your fund of choice performed during the 2008 and 2009 market crisis and see if the amount of loss is something you can stomach in the future.