Time to buy

Question: Do you think this is a good time to buy the TD Real Return Bond Fund? I read your Mutual Fund Book for 2000, and know you like the fund, but I’m not sure if this is the time I should be buying.

Answer: This fund invests in bonds that are indexed to inflation, both for principal and interest. So when increases in the cost of living index start to accelerate, it does very well. The past year has been a good period for this fund; in fact it was the best performer in the Canadian Bond category for the 12 months to Oct. 31 with a gain of 14%. I still like the fund and it gets a $$$ rating in the 2001 edition of Gordon Pape’s Buyer’s Guide to Mutual Funds. However, the climate for bonds appears to be changing. The economy is slowing and that could mean that interest rates will begin to decline next year. If so, more conventional bond funds will perform better. They struggled when rates were on the rise, but they’ve done better recently and could produce returns in the 8% – 12% range next year.

The best results in a falling interest rate environment will come from funds that specialize in long-term bonds, such as the Altamira BonFund.

In sum, don’t make the Real Return Bond Fund your only choice. Add some other types of bond funds as well.