4 Top-Performing Ultrashort Bond Funds

Ultrashort bond funds can provide investors with yield while minimizing risk from rising interest rates. These are the best options for investors, according to Morningstar analysts.

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. All names that passed the screen were actively managed.

Ultrashort Bond Funds Performance

• BBH Limited Duration BBBIX
• Federated Hermes Ultra Short Bond FULLX
• Janus Henderson Short Duration Income ETF VNLA
• Morgan Stanley Pathway Ultra-Short Term Fixed Income TSDUX

Over the past 12 months, the ultrashort bond Morningstar Category returned 4.98%. On an annualized rate, ultrashort bond funds have returned 5.27% over the past three years and gained 3.09% over the past five years. That compares with the Morningstar US Core Bond Index‘s 2.77% return over the past 12 months, 3.69% gain per year over the past three years, and 0.49% loss per year over the past five years.

What Are Ultrashort Bond Funds?

Ultrashort bond portfolios invest primarily in investment-grade US fixed-income issues and have durations typically of less than 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 US Core Bond Index in determining duration assignment. Ultrashort is defined as 25% of the three-year average effective duration of the Morningstar index.

Screening for the Top-Performing Ultrashort Bond Funds

To find the best ultrashort bond funds, we looked at returns data from the past one, three, and five years, using data available in 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. In addition, Medalist Ratings may differ among the share classes of a fund.

BBH Limited Duration

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

The $9.7 billion fund has gained 5.64% over the past 12 months, while the average fund in its category is up 4.98%. The BBH fund, which launched in July 2000, has climbed 6.36% over the past three years and gained 3.98% over the past five years.

“BBH Limited Duration’s methodical process and effective management team keep its risks in check over a market cycle, making it an attractive offering.

“This fund courts more credit and liquidity risk than most ultrashort bond Morningstar Category rivals but does so in a responsible manner. The team examines the business models, underwriting, and loan servicing of each guarantor, avoiding issuers lacking a long record of rigor and consistency. Within asset-backed securities, the team tries to resist the allure of yield-rich debt that otherwise lacks a proven structure or a battle-tested guarantor. For example, it stress-tests each pool against extreme events like a 20% US unemployment rate.

“The team’s meticulous research notwithstanding, the portfolio’s risks are readily apparent. Investment in less-liquid segments of ABS has averaged 23% of assets over the past three years through March 2025. The portfolio tends to hold more BBB corporate debt than most rivals (21% of assets as of March 2025 versus the 15% peer median) and dabbles in below-investment-grade bonds (4% of assets in March 2025). 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, especially in a peer group whose members tend to focus primarily on high-quality bonds.

“Still, longtime lead manager Andrew Hofer and comanagers Neil Hohmann and Paul Kunz have often shown the right mix of patience and opportunism in running the strategy. For example, after buying corporate and securitized debt on the cheap during 2022’s market selloff, the team let those securities pay down and built the portfolio’s cash equivalents to 20% of assets as of March 2025 (up from 4% as of March 2023) amid pricier market valuations.

“Investors must understand the strategy’s risks to use it well. The fund’s above-average duration and relatively heavy credit bias hurt its performance amid 2022’s volatile market, but the timely addition of the aforementioned beaten-down credits helped it rally in the next two years when the market rewarded risk and the strategy landed ahead of 80% of peers in both 2023 and 2024.

“Over even longer stretches, the strategy has compensated investors for its heightened risks. Its trailing 10-year Sharpe ratio (a measure of excess return over excess standard deviation) through May 2025 was one of the category’s best.”

—Saraja Samant, Morningstar analyst

Federated Hermes Ultra Short Bond

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

The $3.2 billion fund has climbed 5.36% over the past 12 months, outperforming the average fund in its category, which rose 4.98%. The Federated Hermes fund, which launched in May 2019, has climbed 5.44% over the past three years and gained 3.19% over the past five years.

“Federated Hermes Ultrashort Bond maintains a consistent approach under the steady leadership of comanagers Nicholas Tripodes and Daniel Mastalski, who have now firmly established their management credentials since taking the helm in April 2023. The strategy’s approach remains unchanged, focusing on balanced risk exposure within the ultrashort bond universe.

“The fund operates in the ultrashort bond Morningstar Category, maintaining a portfolio duration (a measure of interest rate sensitivity) shorter than one year as required. Given the limited scope to add value through duration and yield-curve management at this end of the curve, the strategy emphasizes sector rotation, credit selection, and security selection. The fund leverages Federated Hermes’ dedicated specialty teams for security selection in sectors beyond the comanagers’ direct expertise in structured products, while also drawing on the firm’s asset-allocation committee for broader market insights. The portfolio maintains most assets in high-quality securities, primarily AAA rated asset-backed securities and investment-grade corporate bonds, with opportunistic allocations to riskier below-investment-grade debt, which should contribute positively to the return profile over time.

“This collaborative approach between Federated’s fixed-income asset-allocation team and various sector pods has proved successful over the long term. As of Feb. 28, 2025, the institutional shares’ 15-year annualized return of 2.14% placed it in the top fifth of its distinct ultrashort bond category peers. However, the fund’s realized volatility has been commensurately above peer norms. While absolute volatility metrics may not be fully informative given the fund’s relatively low standard deviation of 1.34%, a more telling indicator is the fund’s maximum drawdown of 3.42%, experienced during March 2020 during the pandemic-driven volatility. This drawdown was substantially more than the peer median of 1.77%, an important consideration for investors viewing this fund as a cash alternative. For perspective, true cash instruments and short-term Treasuries, as measured by the Bloomberg 9-12 Month US Short Treasury Index, returned 85 basis points during that period.”

—Maciej Kowara, Morningstar principal

Janus Henderson Short Duration Income ETF

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

Over the past 12 months, the Janus Henderson fund rose 5.69%, while the average fund in its category rose 4.98%. The $2.8 billion fund, which launched in November 2016, has climbed 5.67% over the past three years and gained 3.24% 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 boutique Kapstream Capital, where he also manages strategies with an Australian focus. While marketed under the Janus Henderson banner, this exchange-traded fund is managed by the same team. Siluk relocated from Australia to the US in early 2024 with the dual aims of bolstering business development and establishing greater cohesion between offices in Sydney and Newport Beach, California. Given his broad remit across continents, he’s undoubtedly busy. 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. Siluk and Maier are backed by a solid team locally and offshore. However, given England’s departure, a continued period of stability is required to improve our conviction in the team.

“Janus Henderson Short Duration Income ETF’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 ranked in the top quartile over one-, three-, and five-year trailing periods as of Feb. 28, 2025. Australian-dollar credit exposure can be somewhat higher than expected at times (it was about 16% as of Dec. 31, 2024), reflecting the broader team’s expertise and personnel. The team has modestly altered its approach to liquidity and looked to employ tail hedges more liberally since 2020.

“Overall, Janus Henderson Short Duration Income ETF strikes a good balance for risk-conscious investors seeking income.”

—Thomas Dutka, Morningstar director

Morgan Stanley Pathway Ultra-Short Term Fixed Income

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

Over the past 12 months, this Morgan Stanley fund, which is subadvised by Pimco and run by the team behind Pimco Short-Term, rose 5.34%, while the average fund in its category rose 4.98%. The $411.1 million fund, which launched in March 2016, has climbed 5.56% over the past three years and gained 3.21% over the past five years.

“Veteran leadership, specialized short-term expertise, effective collaboration, and a time-tested process make Pimco Short-Term PSHAX a best-in-class selection among ultrashort bond peers. This strategy is the broadest of Pimco’s ultrashort offerings and includes Pimco Short-Term and non-US domiciled Pimco GIS US Short-Term.

“Lead manager Jerome Schneider heads an impressive team of dedicated ultrashort and liquidity markets specialists. Schneider is well known as the face of the firm’s short-term strategies and skillfully collaborates with comanagers Andrew Wittkop and Nate Chiaverini, accomplished Pimco veterans whose expertise in rates/derivatives and corporate credit, respectively, creates complementary strengths. Strong collaboration among a dozen short-term specialists drives the strategy’s success, and the strategic addition of these comanagers in April 2019 enhanced depth and alleviated key-person risk with Schneider. The team benefits from abundant resources and draws extensively on Pimco’s world-class global investment platform of analysts, traders, macroeconomic experts, and risk managers.

“The strategy’s proven process, which focuses on short-term and liquidity markets, stands out versus peers. Teamwork is the key to the strategy’s success, yet consistent analytical inputs strongly reinforce liquidity and capital preservation objectives. The team ably leverages its comprehensive global toolkit, which is deeper than that of most peers. The comanagers incorporate insights from the firm’s renowned macroeconomic forecasts to construct portfolios with securities designed to maximize yield and total return potential.

“Robust corporate and structured-products research teams actively support the managers and provide valuable bottom-up intelligence, as investment-grade credit and securitized debt feature prominently (typically 50% to 70% of assets) and deliver a yield advantage over peers. Areas such as high-yield bonds, non-US developed- and emerging-market debt, and currency stakes effectively complement core holdings. The managers demonstrate flexibility by dynamically adjusting portfolio duration across their zero-to-one-year range, and while the fund extensively uses derivatives, Pimco has consistently proved its ability to manage these instruments effectively.

“The strategy touts a compelling long-term track record. Throughout Schneider’s tenure since November 2011, the US-domiciled fund’s institutional shares’ 2.5% annualized gain through July 2025 outperformed the unique ultrashort bond Morningstar Category peers’ median 2.0% result and landed among the category’s best quintile. Volatility-adjusted results proved equally impressive, with the Sharpe ratio better than four-fifths of rivals. While this dynamic approach has generated higher volatility than peers, its occasional stumbles have been well contained.”

—Paul Olmsted, Morningstar senior analyst