Unconstrained bond funds were introduced several years ago, when the industry assumed that investment-grade yields just could not go any lower. Fund managers needed greater flexibility to invest across a wide spectrum of global fixed-income sectors, or so the thinking went.

But after the credit crisis of 2008, yields did continue to move lower, dropping rates past levels previously thought to be all but impossible. At the same time, defaults among lower-quality issuers remained low. Hundreds of billions of investor dollars flowed into all kinds of strategies, many of which posted impressive performance figures.

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