The Evergreen Ultra Short Opportunities Fund has outperformed many other ultra-short bond funds—and weathered the subprime crisis quite well—by shifting assets toward higher-rated mortgage bonds and pass-through securities, according to The Wall Street Journal.
The subprime mortgage crisis has hurt everything from mortgage-backed securities to bond-focused mutual funds, but a well-timed bet that the yield curve would steepen and a diversification in foreign currency bonds helped Evergreen stay ahead.
“I wish I didn’t own any mortgage-backed securities, but that wouldn't have been practical, given that it is our area of specialization,” said Lisa Brown-Premo, manager of mortgage-backed and structured products at Evergreen subsidiary Tattersall Advisory Group. “Fortunately, we had other things that worked well.”
The $947 million Evergreen fund has had a total return of 3.4% this year, one percentage point above the average return for its category, according to Morningstar. The fund has ranked in the top 36% of its group for the past three years and has generated a yield of about 5.8%, approximately 2.7 percentage points above the two-year U.S. Treasury yield. Evergreen also has a 2.25% front-end load, among the highest in its category.
Ultra-short funds try to generate yields well above those of money-market funds by buying corporate and mortgage-backed securities and structured securities. Some of these funds—particularly structured securities—were hit hard by the summer market turmoil.
Fortunately for Evergreen, the fund held less than 10% of its portfolio in structured securities and was able to minimize market impact by shifting assets to higher-rated mortgage bonds, including Aaa-rated, agency-backed collaterized mortgage obligations.
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