2 Top-Performing Ultrashort Bond Funds

For investors who are worried about the effect of fluctuating interest rates on their fixed-income portfolios, ultrashort bond funds may be an attractive option.

To screen for the top-performing funds in this category, we looked for those with the best returns over the last one-, three-, and five-year periods. Both names that passed the screen are actively managed.

• BBH Limited Duration Fund BBBIX
• Janus Henderson Short Duration Income ETF VNLA

Ultrashort Bond Funds Performance

Over the last 12 months, ultrashort bond funds have returned 5.27%. On an annualized rate, these funds have returned 4.65% over the last three years and gained 3.00% over the last five. That compares with the Morningstar US Core Bond Index, which has returned 5.71% over the last 12 months, gained 1.94% per year over the last three years, and lost 0.83% per year over the last five years.

What Are Ultrashort Bond Funds?

Ultrashort bond portfolios invest primarily in investment-grade US fixed-income issues and typically have durations under one year. This category can include corporate or government ultrashort bond portfolios, but it excludes international, convertible, multisector, and high-yield bond portfolios. Because of their focus on bonds with very short durations, these portfolios offer minimal interest-rate sensitivity and therefore low risk and total return potential. Morningstar calculates monthly breakpoints using the effective duration of the Morningstar Core Bond Index in determining duration assignment. Ultrashort is defined as 25% of the three-year average effective duration of the MCBI.

Screening for the Top-Performing Ultrashort Bond Funds

To find the best ultrashort bond funds, we looked at returns from the past one, three, and five years using data available in Morningstar Direct. We screened for open-ended and exchange-traded funds in the top 33% of the category using their lowest-cost primary share classes for those periods. We also filtered for funds with a Morningstar Medalist Rating of Bronze, Silver, or Gold. We excluded funds with assets under $100 million and analyst coverage that was not 100%. This left two funds.

Because the screen was created with the lowest-cost share class for each fund, some may be listed with share classes that are not accessible to individual investors outside of retirement plans, or they may be aimed at institutional investors and require large minimum investments. The individual investor versions of those funds may carry higher fees, reducing returns to shareholders. In addition, Medalist Ratings may differ among the share classes of a fund.

BBH Limited Duration Fund

• Share Class: BBH Limited Duration I BBBIX
• Morningstar Medalist Rating: Bronze
• Morningstar Rating: ★★★★★

Over the past year, the BBH fund rose 6.21%, while the average fund in its category rose 5.27%. The $9.5 billion fund, which launched in July 2000, has climbed 5.54% over the past three years and gained 4.18% over the past five years.

“A strong team and a thorough time-tested approach more than compensate for BBH Limited Duration’s above-average risk profile. This fund is unusual for the ultrashort bond Morningstar Category, boasting among its highest returns and volatility (as measured by standard deviation).

“The strategy is designed to resist the allure of yield-rich debt that otherwise lacks a proven structure or a battle-tested guarantor. For asset-backed securities holding loans or leases, for example, its portfolio managers Andrew Hofer, Neil Hohmann, and Paul Kunz stick with collateral in markets that have endured multiple cycles, and each pool is tested against extreme stress cases such as a 20% US unemployment rate and a 2020 coronavirus-induced market selloff, including at least a 250% increase in base-case losses.

“Unlike most of its category rivals, the strategy also invests in bank loans and in niche areas such as business development companies, which add to the portfolio’s complexity and risk profile.

“Understanding the risks here is important as the heftier focus on credit risk has provided a relatively bumpy ride: The fund’s return volatility (as measured by standard deviation) has been among the highest in its category over the past 10 years. Yet patient investors have been rewarded as the managers have showcased the ability to manage big drawdowns besides boasting a strong long-term risk-adjusted performance record. Over the trailing decade through May 2024, the fund’s Sharpe ratio (a measure of return per unit of risk) was among the category’s top five.”

—Saraja Samant, analyst

Janus Henderson Short Duration Income ETF

• Ticker: VNLA
• Morningstar Medalist Rating: Bronze
• Morningstar Rating: ★★★

Over the past year, the Janus Henderson fund rose 6.25%, while the average fund in its category rose 5.27%. The $2.6 billion fund, which launched in November 2016, has climbed 4.96% over the past three years and gained 3.14% over the past five years.

“Janus Henderson Short Duration Income ETF’s conservative focus on downside protection has not been a hindrance to solid peer-relative performance. Team changes in recent years have been significant. Lead responsibility for the fund now lies with Daniel Siluk following Jason England’s departure from the firm in March 2024. Siluk heads the investment team for Janus Henderson’s boutique, Kapstream Capital, where he also manages strategies with an Australian focus. While marketed under the Janus Henderson banner, VNLA is managed by the same team.

“Fortunately, Siluk is supported by Addison Maier, who has been with Janus Henderson since 2011. Maier has experienced a steady career progression since commencing as a credit analyst, being promoted to portfolio manager of the strategy in March 2024.

“However, given England’s departure, a continued period of stability is required to improve our conviction in the team. VNLA’s credit risk is greater than its US short-duration bond Morningstar Category cohort, although it remains firmly investment-grade in quality. Returns have lagged its somewhat ambitious cash plus 2%-3% target (before fees), but the team has largely retained its downside protection via conservative positioning and careful security selection. Additionally, performance relative to its category peers has been strong in both absolute and risk-adjusted terms; for example, it has ranked in the top quartile over one-, three-, and five-year trailing periods as of Feb. 28, 2025.

“Overall, VNLA strikes a good balance for risk-conscious investors seeking income.”

—Thomas Dutka, director