4 Top-Performing Short-Term Bond Funds

Short-term bond funds can be safer holdings for fixed-income investors worried about rising interest rates. These are four of the best options according to Morningstar analysts. We looked for the funds with the best returns over the last one-, three-, and five-year periods. All names that passed the screen were actively managed.

• Calvert Short Duration Income Fund CDSRX
• FPA New Income Fund FPNIX
• Neuberger Berman Short Duration Income ETF NBSD
• PGIM Short Duration Multi-Sector Bond Fund SDMQX

Short-Term Bond Fund Performance

Over the last 12 months, the short-term bond category returned 5.66%. On an annualized rate, short-term bond funds have returned 5.35% over the last three years and gained 2.23% over the last five years. That compares with the Morningstar US Core Bond Index, which has returned 6.06% over the last 12 months, gained 3.66% per year over the last three years, and lost 0.42% per year over the last five years.

Screening for the Top-Performing Short-Term Bond Funds

Short-term bond portfolios invest primarily in corporate and other investment-grade US fixed-income issues and typically have durations of 1.0-3.5 years. These portfolios are attractive to fairly conservative investors, because they are less sensitive to interest rates than portfolios with longer durations. Morningstar calculates monthly breakpoints using the effective duration of the Core Bond Index in determining duration assignment. “Short term” is defined as 25%-75% of the three-year average effective duration of the MCBI.

To find the best short-term bond funds, we looked at returns from the past one, three, and five years using Morningstar Direct. We screened for open-end 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 Morningstar Medalist Ratings of Bronze, Silver, or Gold. We excluded funds with assets under $100 million and analyst coverage that was not 100%. This left four investments.

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. Medalist Ratings may differ among the share classes of a fund.

Calvert Short Duration Income Fund

• Morningstar Medalist Rating: Bronze
• Morningstar Rating: ★★★★★

Over the past year, the Eaton Vance fund rose 6.26%, while the average fund in its category rose 5.66%. The fund, launched in February 2019, has climbed 6.48% over the past three years and 3.18% over the past five.

The fund’s environmental, social, and governance mandate may raise questions but proves less restrictive in practice. While ESG analysis might theoretically narrow the investment field, the impact is primarily visible in the fund’s avoidance of energy holdings. The fund’s opportunity set remains quite wide, encompassing numerous sectors where ESG analysis is less clear-cut and thus less restrictive, such as Treasuries, mortgages, and asset-backed securities. The process has been executed well, demonstrating thoughtful risk-taking without a cavalier attitude toward capital impairment.

The fund’s investment process remains otherwise consistent. The strategy takes on more credit risk compared with most short-term bond category peers, with corporate and non-government-related securitized credit making up around 75% of the portfolio. This approach may lead to occasional underperformance, but it is not inherently faulty. The team employs a mix of bottom-up fundamental analysis and top-down asset allocation to an opportunity set screened for favorable sustainability characteristics.

Credit for execution goes to Vishal Khanduja and Brian Ellis, who have been at the helm since their arrivals in early 2013 and late 2015, respectively. The fixed-income group, fully integrated across the former Calvert, Eaton Vance, and Morgan Stanley teams since late 2023, now leverages extensive global resources. The bank-loan and high-yield research teams continue to be favorably regarded by Morningstar analysts covering their respective offerings.

As of Feb. 28, 2025, the fund’s performance has been solid, with returns for all standard trailing time periods landing in the top quintile of its distinct category peers. However, it’s important to note that these returns have been achieved with above peer-norm realized volatility. While short-term, sharp downturns like the covid crisis have occasionally resulted in deeper drawdowns, the fund’s maximum drawdown over longer periods has remained close to the category median. The fund’s credit-biased approach has led to a performance record that aligns with expectations, but potential investors should be aware of the increased volatility.

FPA New Income Fund

• Morningstar Medalist Rating: Silver
• Morningstar Rating: ★★★★

The $10.7 billion fund has gained 6.90% over the past year, while the average fund in its category is up 5.66%. The FPA fund, launched in July 1984, has climbed 6.34% over the past three years and 3.31% over the past five.

From a distance, FPA New Income looks a little complicated, but up close, its style is relatively simple and very effective.

Regardless of its leanings at a particular time, the portfolio almost always holds an eclectic mix of bonds that may look risky on the surface but have underlying safeguards or collateral features that make them safer and more predictable than they appear. Portfolio manager Abhijeet Patwardhan won’t buy anything without robust issue-by-issue research, and everything must pass extreme stress-testing while still offering significant value. That has extended to its deeply discounted agency-backed mortgages with very stable prepayment speeds, for example, while the asset-backed securities sleeve includes a more diverse mix of insurance-premium receivables, mortgage servicer advance payments, and rental-car financing, among others.

That stress-testing dovetails with a simple element of the fund’s process: Identify the longest-duration bonds expected to produce at least a breakeven return over 12 months, assuming the bond’s yield will increase by 100 basis points during that stretch. The other side of that goal, however, is to make sure the bond performs well if yields fall, as well. That means, for example, avoiding holdings whose refinancing risk stunts returns during a falling rate rally.

The fund’s recent focus on deeply discounted agency mortgages is emblematic. Patwardhan won’t buy any that fail the fund’s 100 basis point selloff test, but the extremely low rates of their underlying loans are also key. With the new mortgage rates close to 7%, they would still have to come down multiple percentage points to incentivize homeowners with rock-bottom rates to refinance. And even if they did, paying off a mortgage’s balance delivers bondholders par for securities otherwise valued well below.

Combined with low market rates, the strategy’s risk test kept its duration short for a long time. After 2022, the Federal Reserve hikes pushed up yields across the maturity spectrum, though, and Patwardhan has been inching up duration ever since. It stood at 3.4 years at the end of March 2025, the longest it has been in more than 20 years.

That’s at the long end for a short-term fund but still modest relative to the broader market. That kind of caution has protected investors from major downdrafts, including during the severe 2022 selloff, which has pushed its long-term returns well past most of its distinct Morningstar Category peers. As of mid-2025, its returns for all standard trailing periods and since Patwardhan was named a comanager in 2015, all placed in the category’s best quartile.

Neuberger Berman Short Duration Income ETF

• Morningstar Medalist Rating: Bronze
• Morningstar Rating: ★★★★

Over the past year, the Neuberger Berman fund rose 6.13%, while the average fund in its category rose 5.66%. The fund, launched in June 2010, has climbed 6.31% over the past three years and 3.06% over the past five.

Neuberger Berman Short Duration Income ETF is an attractive option for short-term bond investors in search of extra yield.

Converted from a legacy mutual fund in June 2024, this offering is part of Neuberger Berman’s foray into active fixed-income exchange-traded funds. Though the mutual fund’s record extends nearly four decades, the team has managed it in its current form since a 2019 mandate tweak. In the time thereafter, the strategy has consistently been among the highest-yielding funds in the short-term bond Morningstar Category. This is by design. The managers prioritize generating attractive income levels and do so largely by allocating across short-dated corporate and securitized credit depending on relative value opportunities.

This strategy’s systematic multisector approach is typical among peers, blending quantitative and qualitative analysis. Supporting sector-specialist teams, such as those focused on analyzing various types of securitized credit, are paramount. Sector leaders combine forward-looking views with historical return distributions in a quantitative optimizer to generate a series of sector return distributions. From here, the team jointly finalizes tactical sector allocations at least every other week. Supporting sector groups handle selection and trade execution for their respective sleeves of the portfolio, following a methodical credit selection process that is standardized across Neuberger Berman’s fixed-income platform.

The firm’s established multisector expertise inspires confidence, but this team’s short-term portfolio management expertise is equally important. Lead manager and Neuberger Berman veteran Michael Foster is chiefly responsible for the day-to-day management of this ETF. Named on this strategy since 2010, Foster has managed short-term mandates since 2003 and has spent nearly his entire three-decade career at the firm. He works closely with comanager and fellow short-term expert Matthew McGinnis, who has been named on the strategy since 2017. The duo collaborates with Chief Investment Officer Ashok Bhatia, Co-Head of Investment-Grade Credit David Brown, and a slew of other multisector and sector-specialist managers.

The strategy’s strong income generation has driven a compelling relative performance profile both before and after its 2024 conversion into an ETF, especially for investors willing to stomach some extra volatility. Indeed, the strategy’s 2.91% annualized return between August 2019 and July 2025 edged more than 75% of distinct short-term bond category peers. Still, the managers will have to prove themselves over a longer period with respect to navigating the liquidity challenges associated with ETFs, particularly given some of their allocations to less liquid tranches of securitized credit.

PGIM Short Duration Multi-Sector Bond Fund

• Morningstar Medalist Rating: Gold
• Morningstar Rating: ★★★★★

The $7.4 billion fund has gained 6.15% over the past year, while the average fund in its category is up 5.66%. The PGIM fund, which launched in December 2013, has climbed 6.39% over the past three years and 2.80% over the past five.

PGIM Short Duration Multi-Sector Bond has produced higher volatility than its average short-term bond Morningstar Category peer but has shown it can produce enough return over the long haul to make up for it.

Longtime comanagers Robert Tipp, Gregory Peters, and Richard Piccirillo each have 30 or more years of industry experience, and PGIM added Matthew Angelucci and Tyler Thorn to the team in 2023; they have been with PGIM since 2005 and 2015, respectively. An army of portfolio managers and analysts—most with double-digit years of experience—supports this crew, each with more than 125 members in its ranks.

The group also oversees PGIM Total Return; the main difference between the two strategies is their respective benchmarks. This one uses the Bloomberg US Government/Credit 1-3 Year Index, while PGIM Total Return employs the longer-duration Bloomberg US Aggregate Bond Index. It has been more muted since, but this fund’s duration (a measure of interest-rate sensitivity in years) has often run longer than its own bogy, until 2022 often ranging between 2.2 and 2.8 years, placing at the long end of its short-term bond category. Everything else about this strategy is similar to its sibling’s—including its tracking error risk budget of 250 basis points, albeit versus a shorter-maturity benchmark.

That gives the portfolio a lot more flexibility than most rivals, helping explain why it has been among the category’s most successful—and most volatile. Going into the early-2020 coronavirus-driven selloff, for example, the portfolio had 8% exposure to high-yield, 10% of assets in emerging markets, and around 45% in a mix of securitized credit assets that had a rough ride. The strategy’s mutual fund Z shares fell more than 9% from Feb. 20 through March 23, 2020, before mounting a strong comeback.

That period was an outlier, though, and while the strategy has been more sensitive to selloffs than most peers, that pain has rarely been as severe. For example, as Russia’s invasion of Ukraine and the Fed’s rate hikes sent shockwaves through markets during 2022’s first quarter, the Z shares’ 3% loss was only slightly worse than the median 2.7% drop among its distinct peers. Its returns over the typical trailing periods as of Dec. 31, 202,4 all placed in or near the short-term bond category’s best quartile and have placed similarly on a volatility-adjusted basis as measured by its Sharpe ratio (a measure of excess return relative to excess standard deviation).