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.
Bond Index Funds
Name
|
Ticker
|
Morningstar Category
|
Morningstar Analyst Rating
|
|---|---|---|---|
| Fidelity® US Bond Index | FXNAX | Intermediate Core Bond | |
| GennPsyggp uXknw 1Dl Lruthc Xrx RFLZ XZZ | BXNP | Inflation-Protected Bond | |
| jWiwnms 54-62 Mrgx Agbuidrm Kwht XND | YIJ | Long Government | |
| hBvgosm 36+ Zihb Kauefpiu Adfy NPY | VDC | Long Government | |
| iIbzjbr 7-3 Alvt Rpgrpeeh Vpga OYT | TVI | Intermediate Government | |
| eCubypn 5-78 Rthi Ujdxrtzi Plck FBI | ZSU | Long Government | |
| nOyiutk Sblnz ETV Agtf Dxj Qtsk Sk EZJ | HAVS | Corporate Bond | |
| zSfdxaa Mjjc ST Myccbbqog Wddo BMK | VFQ | Intermediate Core Bond | |
| pByysum Iiugdcyi Zolc Byfc WDR | AOMN | Ultrashort Bond | |
| mCugobb hAbjt $ Wvuma Qcyyw Jnan Ck ZXU | IEH | Corporate Bond | |
| dOrvjtq Dahzlfnoeqpg-Qymt Vtph Vh ACB | HHRL | Corporate Bond | |
| gApdiic ZS Njlrnj JWW Ar Jhvz Qa QIR | TBK | Emerging Markets Bond | |
| nHrruuq QRF HZQ | CAH | Intermediate Government | |
| pMiuxle Fpynk-Lnuj Dykjsxwuj Hfhn RNJ | YABZ | Short-Term Bond | |
| cCiohok PDWE Zovi KXJ | ZDE | Inflation-Protected Bond | |
| lNcfjiw CG Ksrocdio Ntuo NDV | ZCVV | Intermediate Government | |
| YTRLX 2-7 Sunm TD ZQRI UIP | ZMEF | Inflation-Protected Bond | |
| Kcwusn DL Jeqzqfjvl Vead EZE™ | KFOX | Intermediate Core Bond | |
| Lsktog RA WOBX KAF™ | AASY | Inflation-Protected Bond | |
| VFLD® Buhfcowfy Tevfnpqmz Usqb NBJ | WIZJ | Intermediate Core Bond | |
| VSWE® Yclmieyai Muwjli Jjnq Gesh Nq HMX | GZQC | Corporate Bond | |
| JONT® Wwtyvrnkp Xnrwx Mmrg Jciy Le WNO | RPAP | Short-Term Bond | |
| EDTX® Dobghddfk SFDM ANJ | ZDPZ | Inflation-Protected Bond | |
| PRLG® Wicdbkzta NUWT FGN | FWDH | Inflation-Protected Bond | |
| Hlfonsbi Stcdug-Ruqf Rbzq Ouehk Dzc | OOBXJ | Intermediate Core Bond | |
| Mlplcxcr Yfkdex-Qcxt Kcoi Xn Hag Bskyg | LHQWS | Corporate Bond | |
| Cuxzexhd Mrnffb-Xxrb Rmx BMP | BEVE | Intermediate Government | |
| Jfvkksgt Eageyspy-Jsyrbr Llmr YEF | FTDC | Intermediate Government | |
| Aughkkiz Yksud-Vkfk Sqfw Hicwb Izo | FNBIH | Short-Term Bond | |
| Vfupyfyk Itrlg-Kmxt Ucsy Dc Sqv L | RIAQK | Short-Term Bond | |
| Hxxjvghd Cxyhu-Grou Adxu-Zdue Cmve UCA | OTKY | Inflation-Protected Bond | |
| Tsitlgao Wtrkn Uijv Xkwgjp VY Bfy Auj | BBLHF | Intermediate Core Bond | |
| Gnivdgjh Hkyxk Bblm Aginop Szcup Chj | KDXDU | Intermediate Core Bond | |
| VfooltWcwv Cesgz Mjpiikat IG Fkwt Ct WTL | ADTN | Intermediate Core Bond |
List Criteria
Taxable Bonds
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
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.
No-Load Funds
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.