While Bear Stearns stockholders and bondholders duke it out on Wall Street, many investors have sought safety in low-yielding Treasuries. The problem is that the safest investments provide next to nothing in return.
One fund from T. Rowe Price, the Spectrum Income Fund (RPSIX), offers an interesting mix of bonds and dividend-paying stocks that may offer an alternative to lower-yielding funds. With a yield of almost 4.8%, the return is attractive -- although the mix of bonds and stocks makes the fund riskier than a straight money fund.
Fund facts
- Fund began: June 29, 1990.
- Expense ratio: 0.70%.
- Net assets: $5.1 billion.
- Investment minimum: $2,500.
Fund specifics
With an annualized return of just more than 8% since its inception, Spectrum Income has an enviable track record among fixed-income funds. Edmund M. Notzon III, the portfolio manager for the past 10 years, has helped lead the fund to a long, solid history of consistent performance.
The key to Spectrum Income is that it's a fund of funds. Spectrum Income is allowed to invest in up to 10 of T. Rowe Price's income-producing funds, giving managers the ability to pick and choose from a wide variety of different types of investments that include both bonds and stocks. At the end of 2007, Spectrum Income held nearly 80% of its portfolio in just five funds: four bond funds and an equity-income stock fund.
Spectrum's mix of investments gives it broad exposure to the overall market. One of its fund holdings concentrates on government agency bonds from Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE), as well as AAA-rated corporate debt. Spectrum also holds funds with positions in high-yield junk bonds and international fixed income. The stock fund holds well-known stocks like General Electric (NYSE: GE), ExxonMobil (NYSE: XOM), and Microsoft (Nasdaq: MSFT).
Portfolio fit?
Spectrum Income is suitable for investors who are seeking a high level of current income from their investments and are able to take on some risk. Although Morningstar categorizes Spectrum as a bond fund, investors should be aware that it has about 15% of its holdings in stocks.
With a well-diversified portfolio and a long run of solid returns, the fund will probably continue to be a consistent performer. It may be perfect for those who want a relatively safe harbor with decent returns. Those looking for eye-popping returns or absolute safety should turn elsewhere.
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