It was undoubtedly one of the worst years in most investors’ memory for the bond markets. In reality, The Wall Street Journal reported that it was the worst bond market since 1842.
Ben Johnson, director of global exchange-traded fund research for Morningstar, said there’s a simple reason bond funds are having a tough time. Since interest rates and bond prices are on opposite sides of the swing, bond rates will fall if interest rates rise. But bond prices have been particularly problematic because rates started at such low levels to begin with and have risen significantly from where they started. The federal funds rate range is 0.75% to 1.00%. Rates were raised by 0.5% on May 4 and further hikes are expected in the coming months.
The bad news will continue for some time, Johnson said, noting it will be a painful process.
But some bond funds can do better than others when rates rise. The Balance, a personal finance website, says bond funds with short-term, medium-term, and inflation-protected securities have less interest rate risk than other types, although the site has cautioned that this does not guarantee positive returns in a rising rate environment. .
Here’s Morningstar’s list of the 15 best-performing bond funds and ETFs so far this year, as of April 30.
15. CrossingBridge Ultra-Short Duration Institutional Fund
YTD return: 0.19%
Fund assets: $63.2 million (as of May 9)
Investment type: Open-end fund
Purpose of the Prospectus: Income
Management company: CrossingBridge Advisors LLC