Actively managed bond funds put up a strong showing against their passive counterparts in the past year – and they could do it again as the Federal Reserve cuts interest rates. Over the 12-month period ending June, about 2 of 3 active bond managers trounced their average passive counterpart, according to a recent analysis from Morningstar . In particular, the intermediate core bond category — funds that largely invest in investment grade corporates, government bonds and securitized debt — saw a success rate of 72%.
There were a few tailwinds in active managers' favor. For most of that period, the fed funds rate was at a range of 5.25%-5.
5%, a dynamic that favored exposure to bonds with less duration – that is, shorter-dated bonds with less price sensitivity to rate fluctuations — and rewarded investors who were willing to take credit risk. "That was the absolute sweet spot for those bonds in that 12-month period, and you saw that show up in the overall results for active bond managers," said Ryan Jackson, senior analyst of passive strategies at Morningstar. With the Fed recently cutting rates by a half point — and Chair Jerome Powell noting that two more quarter-point cuts could be in the cards this year — a new challenge awaits these active bond funds.
"Looking ahead, this nice juicy yield that people have enjoyed – it's not going to come down to zero, but it will be an interesting time for bond investors," said Jackson. A nimble approach Passive bond funds t.
