Which bond fund is the best?
That’s sort of a trick question, unless you know the investor who’s asking. And even then, there are other factors to consider and plenty of room for debate.
But there is a short list of bond funds that can claim membership in an exclusive club, one in which they’re recognized not only for their ability to outperform their peers but also for the likelihood that they’ll continue to do so in the future.
Out of 437 unique, U.S.-domiciled, open-ended fixed-income funds and ETFs, only 15 have received both a five-star and a gold analyst rating from Morningstar. Among those funds, there are 2,011 different share classes, of which 31 have both a five-star and a gold rating.
Big asset managers dominate the list of funds with both top ratings: Capital Group’s American Funds, Baird, BlackRock, Dodge & Cox, PIMCO, T. Rowe Price, and Vanguard account for all 15.
Vanguard leads the group with five unique funds: the California Intermediate-Term Tax-Exempt Fund, the High-Yield Tax-Exempt Fund, the Long-Term Tax-Exempt Fund, the Limited-Term Tax-Exempt Fund, and the Short-Term Inflation-Protected Securities Index Fund.
Of the 31 share classes in the group, 17 are institutional, which suggests that all kinds of investors are benefiting from the group’s outperformance relative to other similar funds.
The one-to-five star rating was introduced in 1985 and is purely a quantitative, backward-looking measure of a fund’s past performance calculated at the end of every month. In 2011, Morningstar created the analyst ratings — gold, silver, and bronze — as a way to measure the forward-looking assessment of a fund’s ability to outperform its peer group, or a relevant benchmark, on a risk-adjusted basis over a full market cycle.
Since star ratings are backward-looking, they change more frequently than the analyst ratings, Morningstar said in a statement.
Here are the 31 different share classes that feature both a five-star and a gold rating by Morningstar:
- American Funds Bond Fund of America R6
- American Funds Bond Fund of America R5E
- American Funds Bond Fund of America F3
- American Funds Bond Fund of America 529-F-2
- American Funds Bond Fund of America 529-F-3
- American Funds Bond Fund of America R5
- American Funds Bond Fund of America F2
- Baird Aggregate Bond Institutional
- BlackRock Strategic Global Bond Institutional
- Dodge & Cox Global Bond I
- Dodge & Cox Global Bond X
- Dodge & Cox Income X
- Dodge & Cox Income I
- PIMCO Global Bond Opportunities (USD-Hdg) I-2
- PIMCO Global Bond Opportunities (USD-Hdg) Instl
- PIMCO Global Bond Opportunities (USD-Hdg) A
- PIMCO Global Bond Opportunities (USD-Hdg) Adm
- PIMCO Income Institutional
- PIMCO International Bond (USD-Hdg) Instl
- PIMCO International Bond (USD-Hdg) Adm
- PIMCO International Bond (USD-Hdg) I-2
- T. Rowe Price Floating Rate I
- T. Rowe Price Institutional Floating Rate F
- T. Rowe Price Institutional Floating Rate
- Vanguard CA Intermediate-Term Tax-Exempt Adm
- Vanguard High-Yield Tax-Exempt Adm
- Vanguard Limited-Term Tax-Exempt Adm
- Vanguard Long-Term Tax-Exempt Adm
- Vanguard Short-Term Inflation-Protected Securities ETF
- Vanguard Short-Term Infl.-Protected Securities Idx Adm
- Vanguard Short-Term Infl.-Protected Securities Idx Ins
