https://www.financial-planning.com/list/bond-funds-with-the-worst-15-year-returnsBond funds with the worst 15-year returns
By Andrew Shilling
All of the fixed-income industry’s worst long-term performers recorded gains over all time horizons, with only one in the red so far in 2021.
The 20 worst-performing bond funds of the past 15 years, with at least $100 million in assets under management, notched an average gain of nearly 1.5%, Morningstar Direct data show. Over the past 12 months, the same funds — all actively managed like those in last week’s top-performers ranking — had an average return of 2.28%.
With Treasury yields hovering around 1% over the better part of the decade, Amy Magnotta, co-head of discretionary portfolios at Brinker Capital Investments, says it’s no surprise that the industry's shortest-duration bond funds had a large presence.
“All of the funds on the list with the worst 15-year returns are short-term bond funds, both taxable and municipal,” Magnotta says, adding, “The yield on the one-year Treasury bill has averaged just 1.16% over the last 15 years, and it spent most of the time period below 1%, which is not an attractive starting point for returns of shorter maturity securities.”
For comparison, the iShares Core U.S. Aggregate Bond ETF (AGG), which has a 0.04% net expense ratio, recorded a 15-year gain of 4.29%, data show. Over the past year, the fund had a gain of 0.60%. The iShares 2-3 Year Treasury Bond ETF (SHY), which tracks the ICE BofA 1-3 Year Treasury Index, had 1- and 15-year gains of 0.17% and 2.2%, respectively.
In stocks, the SPDR S&P 500 ETF Trust (SPY) and the SPDR Dow Jones Industrial Average ETF (DIA) have had 15-year returns of 10.30% and 10.32%, respectively. In the past 12 months, SPY and DIA had gains of 48.69% and 44.79%. The funds have net expense ratios of 0.09% and 0.16%.
Fees among bond funds in this ranking were higher than the industry average. With an overall net expense ratio of 0.58%, funds here were only slightly pricier than the 0.45% investors paid for fund investing in 2019, according to Morningstar’s most recent annual fee survey.
When discussing bond fund performance over any time horizon with clients, Magnotta says it’s key to also have a conversation about their role in a diversified portfolio.***
Anyone owe these lemons?
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Does it surprise anyone that short-term bonds would end up at the bottom of the return ladder after 15 years of falling interest rates?