At the height of the summer bond market panic over the then-imminent—since-delayed—Federal Reserve taper, Bill Gross took pen to paper and to the airwaves to pitch investors on the enduring nature, and adaptability, of fixed income investing.
In a battle cry letter to Pimco investors that invoked Charles Darwin's theory of natural selection and several war metaphors and references, Gross made his case for moving ahead with bonds in recognition of rising interest rates, and to a larger extent, the end of a long bull market for fixed income.
"All investments, bonds included, have a number of modern-day weapons at their disposal which can be used to defend against higher interest rates," Gross wrote. Indeed, these new bond weapons are proving to be increasingly popular with investors. Which begs the question, just how dangerous are these weapons?
The increase in flows to alternative credit strategies has been notable. At the end of the first quarter of 2013, there was $81 billion in nontraditional bond funds, according to Morningstar. By the end of the second quarter, assets spiked to $95 billion—easily the biggest quarterly growth in the category's history, according to Morningstar's director of fixed-income research, Eric Jacobson. And the record it eclipsed was the $12.6 billion from the quarter previous. In July and August, as investor panic increased over a rising rate environment and the Fed's taper deliberations, the inflows continued at a high level: $7 billion in July and $5 billion in August.
(Read more: Pimco shook hands with the Fed—and made a killing)
"People are absolutely jumping in like gangbusters in the last several months. ... The category went from nothing a few years back to a juggernaut of category," Jacobson said. The growth has been steady over the past few years, but reaching $107 billion in assets by the end of August was an eye-opening mark for a bond fund approach that had just $4.9 billion in assets five years ago.
The move also parallels the rise of alternative equity mutual funds, and both trends have been spurred by a reluctance from even high-net-worth investors to use illiquid alternative strategy funds ever since the crisis when their money was tied up at the worst possible moment.
(Read more: The bond market's ticking time bomb?)
One fund alone—the Pimco Unconstrained Bond Fund, has had inflows of more than $9 billion so far this year, roughly $7 billion more than the fund garnered in all of 2012—a stellar non-risk-adjusted performance run last year helped, said Andrew Clark, research analyst at Lipper.
And the same explosive growth can be seen in funds that don't have the same level of retail investor celebrity as Pimco—TCW's MetWest Unconstrained Bond Fund started the year with $99 million in assets and had reached $437 million in assets by the end of August, a 342 percent growth rate. The strategic income fund category has seen an increase of $6 billion in flows this year, including notable gains for BlackRock Strategic Income, JPMorgan Strategic Income and Goldman Sachs Strategic Income.