It’s easy to forget about bonds when there’s so much turbulence in the stock market.
And while the recent falls in equities will always get more attention, bonds have been struggling quietly, if not as dramatically, for much longer.
From August 5, 2020 through January 21, 2022, the Bloomberg US Aggregate Index lost 2.48% annualized or 3.61% cumulatively as the economy kicked into high gear and interest rates interest soared.
It’s not catastrophic, but it’s concerning for investors, many of whom have suffered nearly a year and a half of losses in their bond portfolios, and rates are expected to rise.
With that in mind, it’s time to check out the 10 largest actively managed funds in Morningstar’s Intermediate Core Plus Bond fund category to find out how they’ve handled the past 18 months and how they stack up for the foreseeable future.
As always, it’s worth noting how prominent these funds are in investors’ bond portfolios.
In total, the 10 funds manage $484 billion, more than half of the $928 billion in assets in the category of the 172 funds. They are simply the funds of choice for most investors when trying to beat the Agg without deviating too drastically from it.
The 10 Largest Intermediate Core Plus Bond Funds
|name||Return, 2020-08-05 to 2022-01-21 USD||Fund size (in billions of dollars)|
|Metropolitan West Bd M Total Return (MWTRX)||-1.78||83.60|
|Pimco Total Return Instl (PTTRX)||-1.11||71.90|
|Dodge & Cox Income (DODIX)||-0.60||71.80|
|PGIM Total Return Bond A (PDBAX)||-1.48||54.40|
|DoubleLine I Total Return Bond (DBLTX)||-0.28||47.60|
|Western Asset Core Plus Bond I (WACPX)||-1.30||40.70|
|Fidelity® Total Bond Fund (FTBFX)||-0.18||34.20|
|Baird Core Plus Bond Inst (BCOIX)||-1.38||28.80|
|Guggenheim Total Return Bond Instl (GIBIX)||0.55||26.90|
|JHancock Bond A (JHNBX)||-0.53||24.80|
|Bloomberg US Agg Bond TR USD||-2.48|
Source: MorningstarDirect / Data through January 21
For now, some deviation has helped. The 10 largest funds have all outperformed the index’s 2.48% annualized loss since August 5, 2020, with the average fund losing 0.75%.
The best performing fund was the $26.9 billion Guggenheim Total Return fund, with an annualized return of 0.55%. Managed by veterans Scott Minerd, Anne Walsh, Adam Bloch and Steven Brown, the fund holds more than 50% of its assets in corporate bonds, including high yield, securitized assets and bank loans. She also holds 3.9% of her portfolio in preferred shares.
The second best performing fund was the $34 billion Fidelity Total Bond fund, which lost 0.18% on an annualized basis.
Currently, the fund is positioned with around 42% of its assets in government securities, 30% in corporates, 19% in securitized assets and around 8% in cash. More than half of its corporate exposure is in junk bonds, and the extra yield from those bonds likely helped it outperform its peers.
The third best fund over the nearly 18-month period is the DoubleLine Total Return fund, with an annualized loss of 0.28%.
Instead of Fidelity Total Bond’s corporate bond exposure, DoubleLine Total Return is almost entirely made up of securitized assets. Non-agency residential and commercial mortgage-backed securities (MBS) account for over 35% of the portfolio, with an additional 36% in agency residential MBS. The lower duration of the fund’s profile (4.6 years versus 6.7 years for the index) allowed it to outperform the index and its peers.
The fund is managed by Jeffrey Gundlach, Andrew Hsu and Ken Shinoda.
Finally, the worst performing fund is the largest, the $83.6 billion Metropolitan West Total Return fund, with an annualized loss of 1.78% since August 5, 2020. The fund, which still beat the index loss of 2.48%, holds 65% of its assets in US Treasuries and agency bonds. It also holds 14.5% of its portfolio in BBB-rated securities.
The fund is managed by Stephen Kane, Laird Landmann and Bryan Whalen.
Overall, funds in the Intermediate Core Plus category have done well during this period of rising rates. Actively managed taxable bond funds brought in more than $250 billion last year, according to Morningstar data, and the Intermediate Core Plus category accounted for $35 billion. So far, it does not appear that the money has been misallocated.