The Best Active Taxable-Bond Funds

In Bonds, Benchmarks, and Index Funds, Morningstar director of manager research Alec Lucas lays out the case for active fixed-income funds. His team’s research shows how the makeup of the bond market and the challenges of indexing it give active managers an opportunity to distinguish themselves.

That leaves fund investors with the task of identifying managers who have a good chance of doing so. The Morningstar Medalist Rating is the place to start. It identifies funds that are likely to outperform over a market cycle.

The list below features mutual funds and exchange-traded funds that are the best of the best, having earned Gold ratings from our analysts. These strategies are run by proven management teams backed by strong parent firms, with modest expense ratios that are a low hurdle in the competition against low-cost index funds.

The list includes active taxable-bond funds from 13 Morningstar Categories, ranging from ultrashort bond to emerging-markets bond. Investors seeking core portfolio holdings are best served by intermediate core bond, intermediate core-plus bond, and intermediate government-bond funds, or short-term or ultrashort bond funds for investments with limited time horizons. Morningstar’s role in portfolio framework evaluates how more specialized bond categories can be incorporated into a diversified portfolio.

Because fund expenses affect a fund’s likelihood of outperformance, the Medalist Rating is assigned to mutual funds by share class—meaning cheaper share classes may have higher ratings than pricier share classes. The list below singles out the lowest-cost Gold-rated share class for each fund. Some of the cheapest share classes may be aimed at institutional investors who can meet high investment minimums, while others are accessible to individual investors through retirement or 529 plans.

If a strategy has both mutual fund share classes and an exchange-traded version rated Gold, the ETF is represented here, as ETFs are widely accessible to most investors. All data is as of Nov. 20. For the most recent data and analysis on a fund, click on its ticker.

How to Find More Great Funds

Some investors may want to expand their search beyond this list, using parameters that matter to them. Here are ways to use Morningstar data and research to find great funds:

• Use the Morningstar Investor screener to create your own list of funds to investigate further.
• Explore Morningstar Medalist funds on our Best Investments page.
• Read our latest insights on funds and ETFs.

This How-To article spells out how to approach a search for active bond funds in particular categories, using the tools available to Morningstar.com subscribers.