Without a doubt, this is one of the worst years in most investors’ memory for bond markets. In fact, The Wall Street Journal reported that this is the worst bond market since 1842.
Ben Johnson, director of global exchange-traded fund research for Morningstar, said there's a simple reason bond funds are having a tough time. Because interest rates and bond prices sit on opposite sides of the seesaw, bond rates are going to go down if interest rates go up. But bond prices have been especially problematic because rates started at such low levels to begin with and have dramatically increased relative to where they started. The federal funds rate range is 0.75% to 1.00%. Rates were raised by 0.5% on May 4, and more hikes are expected in the months ahead.
The bad news will continue for some time, Johnson said, noting that it’s going to be a painful process.
But some bond funds can do better than others when rates are rising. The Balance, a personal finance website, says bond funds with short-term, intermediate-term and inflation-protected securities have less interest-rate risk than other types, though the site cautioned that this does not guarantee positive returns in a rising rate environment.
Here is Morningstar's list of the 15 bond funds and ETFs with the best performance so far this year, as of April 30.
15. CrossingBridge Ultra-Short Duration Institutional Fund
YTD Return: 0.19%
Fund Assets: $63.2M (as of May 9)
Investment Type: Open-End Fund
Prospectus Objective: Income
Management Company: CrossingBridge Advisors LLC
14. iShares Treasury Floating Rate Bond ETF
YTD Return: 0.24%
Fund Assets: $961.9M (as of May 9)
Investment Type: Exchange Traded-Fund
Prospectus Objective: Government Bond – Treasury
Management Company: BlackRock Fund Advisors
13. WisdomTree Floating Rate Treasury ETF
YTD Return: 0.34%
Fund Assets: $4.76B (as of May 9)
Investment Type: Exchange-Traded Fund
Prospectus Objective: Government Bond - Treasury
Management Company: Mellon Investments Corporation
12. RiverPark Strategic Income Institutional
YTD Return:0.38%
Fund Assets: $215B (as of May 9)
Investment Type: Open-End Fund
Prospectus Objective: Income
Management Company: RiverPark Funds
11. Eaton Vance Short Duration Inflation Protected Income Fund I
YTD Return: 0.61%
Fund Assets: $848.8B (as of April 30)
Investment Type: Open-End Fund
Prospectus Objective: Growth
Management Company: Eaton Vance Management
10. Invesco Senior Floating Rate A
YTD Return: 0.80%
Fund Assets: $4.04B (as of May 9)
Investment Type: Open End Fund
Prospectus Objective: Corporate Bond - General
Management Company: Invesco Ltd (OFI/OppenheimerFunds)
9. Franklin Floating Rate Daily Access Fund Advisor Class
YTD Return: 0.82%
Fund Assets: 1.8B (as of April 30)
Investment Type: Open-End Fund
Prospectus Objective: Corporate Bond - General
Management Company: Franklin Templeton Investments
8. Putnam Mortgage Opportunities I
YTD Return: 3.67%
Fund Assets: 218.2M (as of April 30)
Investment Type: Open-End Fund
Prospectus Objective: Income
Management Company: Putnam
7. T. Rowe Price Dynamic Global Bond Investor Class
YTD Return: 4.73%
Fund Assets: $4.88B (as of May 9)
Investment Type: Open-End Fund
Prospectus Objective: Income
Management Company: T. Rowe Price
6. Fairholme Focused Income
YTD Return: 4.82
Fund Assets: $135.5M (as of May 9)
Investment Type: Open-End Fund
Prospectus Objective: Income
Management Company: Fairholme Capital Management LLC
5. SEI Multi-Asset Real Return A (SIIT)
YTD Return: 9.99%
Fund Assets: $769.9M (as of May 9)
Investment Type: Open-End Fund
Prospectus Objective: Growth and Income
Management Company: SEI Trust Company
4. ProShares Inflation Expectations
YTD Return: 10.29%
Fund Assets: $55.6M (as of May 9)
Investment Type: Exchange-Traded Fund
Prospectus Objective: Government Bond - Treasury
Management Company: ProFund Advisors LLC
3. BlackRock Allocation Target Shares Series P
YTD Return: 11.06%
Fund Assets: $51M (as of May 9)
Investment Type: Open-End Fund
Prospectus Objective: Multisector Bond
Management Company: BlackRock Inc.
2. FolioBeyond Rising Rates ETF
YTD Return: 29.74%
Fund Assets: $80M (as of May 9)
Investment Type: Exchange-Traded Fund
Prospectus Objective: Government Bond - General
Management Company: FolioBeyond LLC
1. Simplify Interest Rate Hedge ETF
YTD Return: 52.62%
Fund Assets: $296.9M (as of May 9)
Investment Type: Exchange-Traded Fund
Prospectus Objective: Government Bond - Treasury
Management Company: Simplify Asset Management Inc.
