Best performing actively managed bond funds in 2023, ranked by Morningstar

When it comes to investing in bond funds, investors may want to consider actively managed options for the potential of higher returns. While overall, passive funds have outperformed actively managed funds, the bond category tells a different story.

According to Morningstar, 53% of active bond managers survived and beat the passive average in 2023, up from 30% in 2022. Active intermediate core bond managers led the way with a 57% success rate. These funds primarily invest in investment-grade debt, such as government issues and corporates, and tend to take more credit risk through the corporate bond market or mortgage-backed securities compared to indexed funds.

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Paul Olmsted, a senior manager research analyst at Morningstar, believes in the long-term benefits of active management in the bond market. He notes that active managers have the ability to take advantage of opportunities as they arise, which can lead to better returns.

For investors looking into actively managed bond funds, it’s essential to consider the costs involved. Actively managed funds typically have higher fees compared to passively managed options. However, higher expenses can be justified if the fund is able to deliver strong returns.

One actively managed option to consider is Fidelity’s Intermediate Bond Fund (FTHRX), which has an expense ratio of 0.45% and a year-to-date total return of -0.4%. While the fees may be higher, the fund’s performance has been strong compared to its passive peers.

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When choosing an actively managed bond fund, it’s crucial to do your due diligence and ensure that the fees are not eating into your returns. Olmsted recommends looking for a manager with a proven track record of performance versus the index and paying between 50 basis points and 75 basis points in fees.

Ultimately, the decision to invest in an actively managed bond fund should be made in the context of your overall investment strategy and goals. By selecting the right fund and manager, investors can potentially achieve higher returns in the bond market.

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