Active Bond Funds Underperform

The fact that active mutual fund managers regularly underperform their benchmarks when it come to equities is well known.  Now, evidence points to the same poor performance on the part of active bond managers.

The Wall Street Journal’s Tom Lauricella reports that the average intermediate bond fund lost 4.7% in 2008 compared to the benchmark Barclays Capital Aggregate Index which was up 5.2% in the same period.

Turns out that the active managers were betting on low quality bonds as the credit crisis continued to unfold.  In June 2008, the average intermediate fund held 62% of its assets in triple-A rated securities and over 5% in junk bonds compared to 76% in triple-A and 0% in junk for the benchmark.

The lousy performance by active managers in 2008 was not an outlier.  Lauricella points out that since 1999, the average active bond fund has topped the index only once.

Exchange traded fund investors can gain exposure to the Barclays Capital Aggregate Index through the SPDR Barclays Capital Aggregate Bond Fund (AGG).  For a focus on just intermediate term bonds, consider the SPDR Barclays Intermediate Term Credit Bond ETF (ITR).

See the ETF Directory for a complete listing of fixed income ETFs.