How the biggest bond funds fared in the first quarter

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Many bond fund investors are licking their wounds after the worst quarter in decades for some parts of the market.

Amid rising interest rates, investors had little place to hide in the early months of 2022. Even the best performing categories ended the first quarter in the red.

Among bond fund strategies, the main contributor to relative performance was the sensitivity of a fund’s holdings to changes in interest rates. In a quarter that saw a significant jump in bond yields, as prices fell, the most rate-sensitive funds generally fared less well.

The average core bond fund lost 5.89% in the first quarter and the average core plus fund fell 5.72%, the worst declines for both categories since the 2008 financial crisis. Meanwhile, the fund average multi-sector bond ended with a loss of 4.7%, the biggest drop since the first quarter of 2020, when markets were rocked by the onset of the pandemic. Funds focused on short-term securities held up better. Bank loan funds lost 0.57% and ultra-short bond funds fell 0.76%.

Here is an overview of the performance of the 10 largest actively managed bond funds and the 10 largest index bond funds in the first quarter.

How did the biggest bond index funds do it?

Vanguard Total Bond Market VTBIX, the largest bond index fund with $248.1 billion under management, tracks the broad Bloomberg Barclays US Aggregate Float-Adjusted Index. The fund takes on less credit risk but more interest rate risk than its peers, according to a Morningstar report. This can be seen in the fund’s average effective duration – a measure of a fund’s sensitivity to changes in interest rates – which is 6.82 years, well above the fund’s average of 6.35. intermediate core bond, and in its performance in the first quarter . The fund finished in the 59th percentile, losing 6.01%.

From the group, the silver-rated Vanguard Intermediate-Term Corporate Bond Index (VICBX) was the best performer, finishing in the 24th percentile among corporate bond funds. The fund’s exposure to credit risk is generally in line with that of its peers, but it takes less interest rate risk. It has lost 6.96% since the start of the year.

The worst performer of the group was the Vanguard Short-Term Corporate Bond Index Fund (VSTBX). The fund has lost 3.7% this year and was beaten by 85% of its peers in the category. However, the fund’s long-term performance is strong, ranking in the top third of the category for the past three years, in the top quarter for the past five years, and just below the top 10% for the past three years. last decade.

How have the largest actively managed bond funds fared?

PIMCO revenue PIMIX, the largest actively managed bond fund with $139.4 billion in assets, fell 4.2% in the quarter to finish in the 43rd percentile in the multi-sector bond category. The fund ranks near the middle of the pack for the past one- and three-year periods, but over the past five years it’s been in the top quarter of the category.

Over the past decade, gold-rated Pimco Income has been in the top percentile. “The strategy has broad breadth and flexibility, and given Pimco’s skill set, its optimism that it can beat the competition is well-founded,” Morningstar analyst Eric Jacobson wrote in an article. report.

The second largest actively managed fund, Vanguard Intermediate-Term Tax-Exempt (VWITX), is also the largest active municipal fund. Along with long-term and emerging markets, municipal funds are among the worst performing bond funds in 2022.

VWITX lost 5.4% in the first quarter, placing it in the top third of its category. The fund also has strong historical performance, finishing in the 26th and 20th percentiles respectively over the past 10 and 15 years.

“The team’s focus on the high end of the credit quality spectrum along with a relatively moderate duration profile may cause the strategy to lag in exuberant markets, but these characteristics have also allowed the strategy to to stay out of trouble in (the) toughest stretches for muni bonds,” Associate Director Elizabeth Foos says in her analyst report.

The best performing and actively managed fund in the group is American Funds Bond Fund of America (ABNDX). The bronze-rated mid-tier core bond fund has lost 5.49% so far this year, but finished in the 18th percentile. His rank was elevated by a strong march. Although the fund lost 2.53% over the month, it outperformed 85% of its peers.

Over the past three years, when current manager Pramod Atluri took over, the fund has been in the top three percent of its peers. Analyst Sam Kulahan notes that the fund emphasizes downside protection.

The worst performers of the group were the Vanguard Short-Term Investment-Grade (VFSTX) and PGIM total return bond (PDBAX)as both funds finished in the 87th percentile year-to-date.

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