Columbia Management writes "Do you know what's in your short-term bond fund?" The article says, "Now that the Federal Reserve (the Fed) has ended its Quantitative Easing (QE) program, what is next for interest rates and fixed-income investments? Many investors expect the Fed to begin raising short rates sometime in 2015. Consequently, they are cautious in their asset allocations, maybe shying away from fixed-income investments. Regardless of the possibility of higher rates, we believe that investors should remain fully invested. At the same time, they should be wary about having too much credit and interest rate risk in their portfolio. In such an environment, short-term bond funds may be worth a closer look.... High-quality short-term bond funds can provide attractive returns for investors seeking a conservative investment option in today's uncertain interest rate environment.... Some managers take reasonable, well-diversified risks; others may be tempted to chase yield, with the results being risks that may exceed investor tolerance. In their ongoing search for yield, some investors may have missed how much interest rate risk or credit risk was driving the strong returns of their short-term bond funds. Looking under the hood of your bond fund can help shed light on the amount and kinds of risks the fund is taking. Is the fund earning its yield by investing in riskier below-investment grade bonds, through riskier sectors or longer maturity bonds? Remember, there is no free lunch. Higher yield generally means higher risk."
