Most bond funds lag market - S&P

|By:, SA News Editor

via Stephen Foley at the FT

That actively-managed equity funds tend to underperform their bogies is well-documented, hence the meteoric rise in passive investing at the expense of traditional asset management.

Relatively unscathed so far has been fixed-income, but might that be passive investing's next target? S&P Global's latest report takes a look at the long-term track record of fixed-income funds and finds they're more likely than not to underperform the market.

In the areas where there's supposedly the most alpha to be had - high-yield and emerging markets come to mind - active managers fare the worst, according to the study.

Over thee- to five-year time frames, results are mixed, but the underperformance is clear over 10-year and longer time frames.

The S&P data is somewhat skewed as it includes mutual fund returns net of fees vs. benchmarks (with no fees), but the group's Aye Soe says adding in passive fees only reduces the scale of the underperformance.

Fixed-income giant Pimco (OTCQX:AZSEY) did its own study using data from Morningstar and found nearly 70% of intermediate-term bond funds outperform passive equivalents over 10 years. In areas like high-yield, not enough funds survived for 10 years for the data to be usable. Enough said.

Interested parties include: T. Rowe Price (NASDAQ:TROW), Legg Mason (NYSE:LM), Invesco (NYSE:IVZ), Franklin Resources (NYSE:BEN).