Fund Manager Q&a: Expect Less From Bonds

[...] says Ford O'Neil, the lead manager of Fidelity's $13 billion Total Bond fund (FTBFX), whose returns have topped 80 percent of its peers over the last 10 years. Bonds are supposed to be the safe part of a portfolio, but the Barclays US Aggregate Bond index lost 2 percent last year. Many funds use the index as their benchmark, and it was the index's largest loss since 1994. What about inflation, which hurts bond investors? Of all the companies coming through Fidelity, we don't see any of them pounding the tables saying, "We can't find workers and need to pay everyone a lot more." Low inflation, a muddling-along economy and a slow rise in interest rates makes it sound like you can still make money with bonds. The government had massive amounts of debt, and we had just come out of a terrible economic period -- kind of like today. The last published numbers show 10 percent in high yield, 2 percent in emerging markets that are not investment grade and 2 percent in high-yield commercial mortgage-backed securities. What if someone just wants a vanilla bond fund, something to provide ballast for their portfolio? There are a lot of clients that want to own bond funds that own nothing but U.S.