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Fund Spy

Where Are the Benchmark-Beating Bond Funds?

A new Morningstar study examines active managers' odds of outperformance across fixed-income categories.

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Longtime readers of Morningstar’s research have heard us relentlessly beat the drum for funds that charge low fees. For all our manager research analysts’ combing through historical portfolios, scrutinizing performance data, and grilling portfolio managers to formulate views on a fund’s People and Process Pillars, there’s no surer indicator that a fund has an advantage over its peers than a cheap price tag. That’s just simple math.

Expenses are especially crucial to consider for fixed-income funds, because returns between bond funds tend to be more compressed. And with yields near historic lows across bond sectors in recent years, fees have eaten up an even larger share of the returns that investors pocket. It’s no wonder, then, that investors have increasingly turned to the expanding menu of low-cost passive exchange-traded funds for their bond exposure.

Miriam Sjoblom does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.