Actively managed bond funds have performed poorly this year. Low fee products still have long-term allocation value.

Despite the overall poor performance of actively managed bond funds this year, they remain an important option for investors seeking stable income. Data shows that there are over $4 trillion in funds invested in actively managed bond funds in the current market. Compared to the stock market, the bond market is more complex in structure, and active management has historically been more likely to outperform the market and have an advantage over passive index products, especially in passive funds with a high proportion of government bonds. However, according to a report released by Morningstar on Tuesday, as of June 30, only 31% of active bond funds outperformed similar index funds in the past year, compared to approximately 62% a year ago. In the core medium-term bond fund category, only 52% of funds performed better than index funds, lower than the over 70% level from last year. More concerning is that funds focused on corporate bonds have almost completely collapsed, with only 4% of funds outperforming passive funds, compared to 64% last year. Morningstar analyst Bryan Armour pointed out that the main reason for the poor performance of the funds is the difficulty for bond managers to cope with market turbulence related to tariffs. He stated, "Actively managed bond funds usually take on more credit risk than index funds...But in April 2025, due to tariff policy announcements and rising geopolitical risks leading to a widening credit spread, this strategy turned out to be unfavorable for the funds." For example, in the corporate bond sector, many active funds cut credit risk exposure as credit spreads widened, but failed to replenish when spreads quickly narrowed in May and June, thus missing out on the rebound market. Despite facing a short-term setback, active bond funds still have an attractive long-term performance. According to Morningstar statistics, over the past 10 years, the average annualized return for medium-term bond funds was 2.1%, compared to 1.7% for similar passive funds. In the lowest 20% of funds in terms of fees, the average return was even higher at 2.4%. This means that for investors who prioritize fee control, the excess return potential of active funds is still considerable. Of course, looking at individual funds, only about one-third of active medium-term bond funds outperformed passive funds over the past 10 years, but this proportion rose to over two-thirds when limited to the lowest fee funds. While Morningstar's report did not name specific funds, in reality, it is not difficult to find actively managed bond funds with reasonable fees and stable long-term performance, especially some funds with large asset sizes, which often have lower costs and mature management. For example, some of the top-performing funds in Morningstar's database include: the Fidelity Investment-Grade Bond Fund, with $10.4 billion in assets under management, an expense ratio of 0.44%, and an average annualized return of 2.31% over the past 10 years; and the Vanguard Bond Fund, with assets under management of $94 billion and an expense ratio of just 0.24%, also with a 10-year average annualized return of 2.31%. This fund is widely used in various retirement plans and is suitable for long-term holding.