Nontraditional bond funds lost an average of 0.47% in February, bringing the category's one-year returns through the end of the month to -4.06% versus 1.50% for the Barclays U.S. Aggregate Bond Index. As a result, investors pulled a total of $21.7 billion out of the category for the year ending February 29, bringing total category assets down to $125 billion.
Despite this, there have been some stellar performers in the category: Six funds generated one-year returns in excess of +2%, but this represented just a small fraction of the 129 funds in the category with track records of at least a year. Meanwhile, 84 funds in the category suffered one-year losses of at least 2%, with 13 of those posting double-digit losses.
Best Performers in February
The three best-performing nontraditional bond funds in February were:
- BTS Tactical Fixed Income Fund (MUTF:BTFAX)
- ProShares CDS Short North American High-Yield Credit ETF (BATS:WYDE)
- Deutsche X-trackers Emerging-Market Bond Interest-Rate Hedged ETF (BATS:EMIH)
The BTS Tactical Fixed Income Fund was the only mutual fund in February's top three, edging out a pair of ETFs to rank as the month's top performer. BTFAX returned +3.30% in the shortest month of the year, bringing its one-year returns to +1.37% for the year ending February 29. This was good enough for it to rank in the top 6% of its category, which may be why the fund received more than $84.7 million in inflows for the year. The fund's one-year beta of 1.49 is high, but with its bullish returns, investors don't seem to mind.
ETFs from ProShares and Deutsche X-trackers took the second and third spots for February, returning +1.89% and +1.51%, respectively. Only the former has been around long enough to have a one-year track record, and it returned +0.86% for the year ending February 29, ranking in the top 1% of all nontraditional bond ETFs. It suffered $3.95 million in net outflows for the year, though, compared to the Deutsche fund, which received $6.25 million in inflows.
Worst Performers in February
The three worst-performing nontraditional bond funds in February were:
- Highland Opportunistic Credit Fund (MUTF:HNRZX)
- PIMCO Capital Securities and Financials Fund (MUTF:PFANX)
- Putnam Premier Income (NYSE:PPT)
Highland's Opportunistic Credit Fund was February's worst-performing nontraditional bond fund, and it was very near the bottom of the category for its one-year returns. HNRZX lost 4.86% in February, bringing its one-year losses through February 29 to a painful 32.16%. The fund's beta of -1.02 indicates nearly perfect inverse correlation to the Barclays US Aggregate Bond Index, but its -36.09% one-year alpha better explains its woeful returns. Over the three-year period, the fund lost an annualized 7.70%, ranking at the very bottom of the category. Thus, it's more than a little surprising that it enjoyed more than $5.9 million in inflows for the one-year period ending February 29.
PIMCO's Capital Securities and Financials Fund only launched on April 13, 2015. It lost 3.83% for the month. Coming in as the third-worst performing nontraditional bond fund is the Putnam Premier Income Fund, which returned -3.68%. Its one-year return through February 29 stood at -10.04%.
Past performance does not necessarily predict future results.
Jason Seagraves contributed to this article.
Note: MPT statistics (alpha and beta) are calculated relative to the Barclays U.S. Aggregate Bond Index.