Expert: Doug Ingram - 12/29/2002

Question
Hello Warren
I wanted to ask you a follow up question to a recent question I had asked you, if I can.

I had been puzzled about a bond mutual fund that I own (aim income fund-b shares. Sym: abifx, to be exact) and why the price per share of the fund had gone down in value in the last two years while most bond funds have increased in value during the same period. With your help, I found out the reason was simply because the bond had a lousy performance, relatively high expense ratio and invested partially in risky “junk bonds”.

My follow up question:
I am seriously considering selling this mutual fund for all of the reasons I mentioned above and wanted your opinion on one thing.

Since interest rates have been the lowest they have been in years, if not decades, and most economist seem to believe that interest rates have no other way but to go up from this time on, do you think that it is possible for a mutual fund like the one I have to decrease in NAV, even more than it already has, as interest rates go up.  

If  it is possible or likely  for this to happen I will have, in my opinion, another good reason to sell this fund.

Once again, thank you very much for taking my question.

Atam

P.S. Please let know if I have asked too many questions. I appreciate your help and do not want to abuse the privilege of asking you or any other allexperts.com volunteer questions, by asking too many questions.


Answer
I can't offewr you advice on shether to buy or sell the fund.
I can tell you that yes, the fund can lose more NAV.
Why?  The stock market has most likely NOT bottomed and who knows how many other Worldcoms and Enrons exist in these funds.

There will be a time to buy stock funds some time in 2003.
Rates should stay low for a while yet.
Maybe you should stay in a money market fund to protect capital until real value presents itself.