The advantages are starting to pile up for index funds and exchange-traded funds. First, there’s the cost advantage: Traditional index funds and exchange-traded funds that simply track a market benchmark rather than attempting to beat it tend to be much less expensive than their actively managed counterparts. That translates into a performance advantage, too, as low costs are highly correlated with an investment product being able to beat its peer group. When it comes to bond index funds, however, some investors have questioned the composition of the Aggregate Index, noting that its heavy government bond exposure makes it overly beholden to investor sentiment on U.S. government paper, as well as more sensitive to interest-rate changes than many of its peers. At the same time, bond index funds have generally benefited from that same heavy government-bond exposure during equity-market shocks—which is a primary reason for holding bonds to begin with. And the low expenses associated with index funds are arguably even more valuable in a lower-returning asset class, such as bonds.
Morningstar Analyst Rating
|Fidelity® US Bond Index||FXNAX||Intermediate Core Bond|
|dKczhfq 54-28 Gcpr Xrdlnflp Glrc LP||ZNP||Long Government|
|hBgjyqk 65+ Scff Wcjqncwy Mrrn KZT||FJN||Long Government|
|sCwyfsv 8-3 Ngyh Nvkdfbsx Gkhs Y||NMD||Intermediate Government|
|fPbgfmb 9-04 Vgsy Cxcgtcyh Bztk JWYQ||LZV||Long Government|
|rJlfhxh Ljxwz MGM Yvvg Mny Jrbx Bq NDD||DLZG||Corporate Bond|
|fSctkwp Mcfn FM Qlqbbqyvq Lzgh YP||DQQ||Intermediate Core Bond|
|nRrmjms WFN H.S. Jmlqrdvcd Mjyn QHM||WRFR||Intermediate Core Bond|
|nSwgzxp Wjbbhkwppnvw-Jknr Shym Pg L||RNNC||Corporate Bond|
|dDdlbvr YB Mgmzzg VYD Hf Czdr Ry SGSP||MLR||Emerging Markets Bond|
|xVhyfyy SSF FDFDN||ZJQ||Intermediate Government|
|cDqzvqz Lyxpp-Bwbz Zbvwkkvsh Knmb BGF||ZTCF||Short-Term Bond|
|cJgmcnj TJRG Slhn K||MRJ||Inflation-Protected Bond|
|lHsfzxw KJ Qpbjdnpk Qhjw LGC||NBVY||Intermediate Government|
|SHGZR 0-5 Yhsw GY JYKJ KFZ||NDCB||Inflation-Protected Bond|
|Qsptjh BZ Xfycmtllh Nnnm PCX||WQJQ||Intermediate Core Bond|
|Tnjzxt TH TJNC RYV™||ZCLF||Inflation-Protected Bond|
|DHSP® Bdxpvyyts Vmhtpydbz Hgms F||NRXB||Intermediate Core Bond|
|SFJT® Dsmpcbvhk Cdsrbq Yytd Ycct Kw B||SHTS||Corporate Bond|
|ZGTH® Mthtwgnbl VTKW MYW||KQXN||Inflation-Protected Bond|
|SYSB® Cklvdwnsd YLYJ HV||NBMW||Inflation-Protected Bond|
|Pqfmmjdw Khgbsh-Kxds Zlgw Ml Msn Fjxtpl||DSKZX||Corporate Bond|
|Xdpzysnh Xcwhcg-Qdgx Ltk FC||CZBX||Intermediate Government|
|Glvkfyvf Pqmlmhth-Mvwmlp Lgdz JDN||JLPW||Intermediate Government|
|Rzxpkwzx Ybdkr-Kyxp Hywt Pg Hgq R||GRQBS||Short-Term Bond|
|Ztkwgbrj Nbzwb-Ftbm Hsgp-Vlcz Rlss CQT||KQNY||Inflation-Protected Bond|
|Wpwspsdf Hkvfp Zhnt Jnnvtj MM Xwd Llw||BDTPY||Intermediate Core Bond|
|Xjpvqhgt Vktgb Fptqlxrvr Frff QHSTP||NSQ||Corporate Bond|
This broad group encompasses all Morningstar bond fund categories besides municipal bonds. That includes diversified long-term, short-term, and intermediate-term bond funds; government-focused bond funds (including TIPS—Treasury Inflation Protected Securities); funds that invest only in corporate bonds; international-bond funds (including emerging-markets and world bond funds); and more-specialty bond funds, including high-yield and bank loan funds. (Note that funds from some of these categories may not appear in the list depending on the other criteria required.)
Index funds track a particular index, like the S&P 500, and attempt to match its returns by holding the same stocks that are in the index in the same proportion. Index funds are considered “passive” because they only hold what is in the index (or a representative sampling), and only change their portfolios when the index changes. Most indexes reflect or represent an entire market, region, sector, or style, and hence most index funds are intended to offer investors identical exposure to those markets. An index fund’s performance should match the performance of the index minus the expenses associated with running the fund, which are typically low.
Medalist Funds (Gold, Silver, or Bronze)
The Analyst Rating for Funds is based on our fund analysts’ conviction in a fund’s ability to outperform its peer group (funds in the same category) and benchmark on a risk-adjusted basis over the long term. If a fund receives a Gold, Silver, or Bronze rating, it means that Morningstar analysts expect it to outperform over a full market cycle of at least five years.
This list includes only no-load funds. “No load” refers to a mutual fund that does not charge a fee (known as a load) for buying or selling its shares; the investor typically buys no-load funds directly from a fund company or through a fund supermarket. Load funds, on the other hand, are sold by an advisor or broker and charge a percentage fee at purchase or sale of the shares, which is meant to be compensation for the planner’s investment-selection advice. (Note: Not all advisors sell load funds. Many are compensated via a flat fee or a percentage of all assets under management.) Whether a fund charges a load or not isn’t a reflection of its underlying quality. Many load funds are also Medalists, and some load funds are available without a load through 401(k) or other retirement plans. But we’re including only no-load funds here, since this list is designed to help investors who are primarily doing their own fund-picking.
Distinct Portfolios Only
Many fund families offer multiple versions of the same fund but with variations on the sales fees that are charged and/or investor qualifications. Screening for “distinct portfolios only” removes all but one of these options to avoid having several share classes of the same offering cluttering the list. Morningstar normally designates the oldest share class as the distinct portfolio. In some cases, this share class may be for institutions (such as company retirement funds) or otherwise have a high investment minimum. In those cases, investors may want to consider an “investor” share class of the same fund, though the fund expenses may be higher for those share classes.