Passive investing, while enormously popular with investors for decades, met its match in active bond funds in the last 10 years. A new study from Eaton Vance found that actively managed bond funds consistently outperformed their passive peers in the last decade.
The study evaluated 327 bond mutual funds across nine Morningstar fixed-income categories. Over a 3-, 5-, and 10-year period, active bond funds collectively outperformed passive. This outperformance is particularly noteworthy in the volatility of the last three years.
Image source: Eaton Vance
Actively managed bond funds also outperformed over 84 rolling three-year periods that ended in the last 10 years. “In other words, active outperformance has been a consistent theme through time, not one just buoyed by recent outperformance,” the study’s authors wrote.
In the last three years, within the taxable universe, active bonds beat passive by 121 bps on average. Over five years, they beat by 112 bps, and 68 bps over the last decade.
The significant outperformance of the last three years underscores the benefits of flexibility amidst volatility and risk.
“In stressed markets, active managers can manage credit quality exposures, shorten or lengthen duration, or emphasize defensive or opportunistic sectors,” explained the authors. “They also have a broader investment universe, which can be advantageous in any environment.”
Don’t Overlook EVTR When Considering Active Bond Funds
In a dynamic market and rate environment, actively managed bond strategies continue to prove popular with investors. The Eaton Vance Total Return Bond ETF (EVTR) is actively managed and is a recent mutual fund conversion.
The fund makes a good entry point for those investors looking to move further out on the yield curve with the benefit of active management. EVTR seeks to generate higher-than-average fixed income returns over three to five years. The fund utilizes a multi-sector strategy that includes both top-down and bottom-up analysis.
EVTR invests primarily in investment-grade bonds that include Treasuries, corporate, municipal, mortgage-backed, as well as asset-backed securities. It also invests in high yield and may invest in derivatives to achieve its goal as well as non-dollar denominated securities.
Investment grade credit (28.28% weight), mortgage-backed securities (26.49%), and commercial mortgage-backed securities (13.81%) made up the largest sector allocations as of 04/30/2024.
EVTR seeks to maintain an average weighted maturity of five-10 years. The fund currently offers an effective duration of 6.00 years with a yield to maturity of 6.51% as of 05/30/2024.
EVTR carries an expense ratio of 0.32%.
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