Bond Fund Champ: What Works Now

Jeffrey Grundlach's bond fund is up 3.01 percent year-to-date. (Yes, you read correctly.) The chief investment officer of TCW offered his outlook and strategy to CNBC.

2008 Defense

Grundlach said he'd shielded his 5-star TCW Total Return Bond Fund from one of the market's most lethal bullets:

"The first real key to success in 2008 has been, for the first half, staying away from the lowest-quality mortgage debt," the CIO said. He followed that up with a decision to "stay away from corporate credit and non-dollar bonds."

But the market tide has turned, he said:

"Secretly and quietly, the lowest-quality mortgages are actually the top-performing assets right now in the fixed-income market."

How is that possible? Grundlach explains that ratings agencies have "priced in some very, very steep problems in the mortgage market." Pricing of debt is now "much more attractive" — relative to sliding equities and commodities.

How He's Buying

So what types of debt is the strategist buying?

"Just a couple of days ago, we made a move toward high-yield and investment-grade corporate. ...The menu of opportunities continues to grow."

He cautioned bond investors that they are not going to make a lot of money in the near-term, but "it's not justified to get out."

Ideas: Top 5 Funds

Want to invest like Grundlach? Morningstar provided CNBC with a list of its five top-performing (non-government) fixed income funds:

- Capstone Church Bond
- Target Intermediate-Term Bond
- Virtus Intermediate Govt Bond I
- PIMCO Extended Duration
- Manor Bond


Disclosure information was not available for Grundlach or his firm.