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number cruncher

What are we looking for?

Biggest bond fund gainers over the past year.

The search

We screened bond funds in all categories to find the best performers for the year ended Aug. 31. U.S. dollar, segregated, and duplicate versions of the funds were excluded, as well as those with less than $25-million in assets and requiring more than a minimum investment of $5,000.

What did we find?

A sea of high-yield bonds funds.

These funds, which are a play on an economic recovery, must have at least 25 per cent of their assets in non-investment grade or "junk bonds." Because these corporate bonds have a higher risk of default, they must pay higher yields to attract investors.

Chou Bond Fund emerged with the biggest gain - a robust 30.5-per-cent return over one year.

Investors shouldn't be expecting these kinds of returns going forward, warned manager Francis Chou of Toronto-based Chou Associates Management Inc. "Most likely it will be single-digits, and people should be happy with that."

A lot of the high-yield bonds are now "fully priced" with an improving economic outlook, said Mr. Chou. "The bargains are not as good as they used to be."

Bonds that have done very well for the fund includes those issued by firms such as and Primus Telecommunications Group Inc. The fund has also been helped by a low management expense ratio of 1.39 per cent.

The fund is invested in non-investment-grade bonds rated BB or lower, but also has about 30 per cent in cash, Mr. Chou said. "When we can't find good ideas, we go into cash."

He looks for bonds when they are "mispriced or misunderstood" like they were in March, 2009, when the market bottomed. "Everything was beaten up," he said. "People thought that the world was going to end, but it didn't."