6 Top-Performing Short-Term Bond Funds

Despite the bond market’s volatility in recent years, short-term bond funds have lived up to their reputation as safe havens, offering investors a low-risk option with consistent long-term returns.

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. Six made it through the screen:

• FPA New Income Fund FPNIX
• Guggenheim Limited Duration Fund GIKRX
• iShares 1-5 Year Investment Grade Corporate Bond ETF IGSB
• JPMorgan Limited Duration Bond ETF JPLD
• MFS Limited Maturity Fund MQLKX
• PGIM Short Duration Multi-Sector Bond Fund SDMQX

Short-Term Bond Funds Performance

Over the last 12 months, short-term bond funds have returned 6%. On an annualized rate, they have returned 3.08% over the last three years and 2.40% over the last five. That compares with the Morningstar US Core Bond Index, which has returned 5.30% over the last 12 months, gained 0.17% per year over the last three years, and lost 0.27% per year over the last five years.

What Are Short-Term Bond Funds?

These portfolios invest primarily in corporate and other investment-grade US fixed-income issues, and they typically have durations between one and three and a half years. They attract fairly conservative investors because they are less sensitive to interest rates than portfolios with longer durations.

Morningstar calculates monthly breakpoints using the effective duration of the Morningstar Core Bond Index. “Short term” is defined as 25%-75% of the three-year average effective duration of the index.

Screening for the Top-Performing Short-Term Bond Funds

We looked at returns data from the past one-, three-, and five-year periods using data available in Morningstar Direct. We screened for open-ended 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 a Morningstar Medalist Rating of Bronze, Silver, or Gold. We excluded funds with assets under $100 million and analyst coverage that was not 100%. This left six names.

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.

FPA New Income Fund

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

Over the past 12 months, the $8.9 billion FPA New Income Fund rose 6.44%, while the average fund in its category rose 6.00%. The FPA fund, which launched in July 1984, has climbed 4.11% over the past three years and gained 2.74% over the past five years.

“FPA New Income’s approach can look stodgy in frothy markets but has made up for it by protecting investors when things go sour. That style dovetails with goals its managers have maintained for several years: gaining at least 100 basis points over the Consumer Price Index over five-year periods and positive returns ‎over 12-month stretches, within a high-quality mandate. Given those parameters, they kept the fund’s duration short—even versus its short-term peers—beginning in early 2002. That metric stayed under 2.0 years through mid-2023. Its leaders have always had the flexibility to take duration longer but have said it would require major shifts in market yields.”

—Eric Jacobson, senior principal, fixed-income strategies

Guggenheim Limited Duration Fund

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

The $5 billion fund has climbed 6.58% over the past 12 months, outperforming the average fund in its category, which rose 6.00%. The Guggenheim fund, which launched in March 2019, has climbed 4.08% over the past three years and gained 3.15% over the past five years.

“The approach of exploiting inefficiencies among out-of-benchmark bonds has historically meant a large mix of securitized fare here. In late 2015, the fund had more than 70% in a mix of midquality collateralized loan obligations, nonagency mortgages, and commercial mortgage-backed securities. After bringing that exposure down and up over the following years, the team cut risk in 2018 and 2019, leaving the fund lagging during the latter. That saved the portfolio from worse damage during the 2020 coronavirus-driven selloff, though, and the team quickly pivoted back, adding risk before the market bounced back. They had further cut risk by the end of 2024, trimming holdings in the aforementioned mix of securitized debt to 24%—in large part based on valuations—and lower exposure to corporates across the quality spectrum.”

—Eric Jacobson

iShares 1-5 Year Investment Grade Corporate Bond ETF

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

Over the past 12 months, the $21.4 billion iShares 1-5 Year Investment Grade Corporate Bond ETF rose 6.45%, while the average fund in its category rose 6.00%. The iShares fund, which launched in January 2007, has climbed 3.51% over the past three years and gained 2.81% over the past five years.

“A riskier credit quality profile helped the fund outperform when credit spreads tightened, albeit at the expense of underperforming during credit shocks. For example, it outpaced the category average by nearly 4 percentage points during the recovery period from late March through December 2020, ending the year positive despite losing when markets soured at the beginning of the coronavirus selloff. Since changing indexes in 2018 through January 2025, the fund beat its average category peer by 59 basis points annualized.”

—Lan Anh Tran, analyst

JPMorgan Limited Duration Bond ETF

• Morningstar Medalist Rating: Gold
• Morningstar Rating: ★★★★

Over the past 12 months, the $1.1 billion fund has gained 6.50%, while the average fund in its category is up 6.00%. The JPMorgan fund, which launched in February 1993, has climbed 4.13% over the past three years and gained 2.72% over the past five years.

“Disciplined security selection and stable duration are key features of this exchange-traded fund, resulting in less volatility than peers. The strategy eschews Treasuries, which make up 70% of the Bloomberg 1-3 Year US Government/Credit Index. Instead, the ETF favors various securitized debt structures designed to offer an attractive yield and a stable duration profile, limiting extension in rising yield periods. While macro themes guide broad positioning, bottom-up security selection drives portfolio construction. Non-agency MBS, commercial MBS, ABS, and collateralized loan obligations (40%-80% of assets) and agency MBS and collateralized mortgage obligations (25%-50%) comprise the bulk of the portfolio, while investment-grade credit plays a supporting role (0%-15%). Duration (a measure of interest-rate risk) has stayed between 1.2 and 1.7 years regardless of the index’s duration and is frequently shorter than the average peer’s 2.2 years.”

—Paul Olmsted, senior analyst

MFS Limited Maturity Fund

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

The $3.1 billion fund has climbed 6.35% over the past 12 months, outperforming the average fund in its category, which rose 6.00%. The MFS fund, which launched in September 2012, has climbed 3.61% over the past three years and gained 2.72% over the past five years.

“The team starts with a bottom-up fundamental analysis of issues and companies, then determines sector allocations based on macro themes and cross-sector valuation. The strategy aims to outperform the benchmark primarily through sector allocation and security selection. The market has thrown a wide range of environments at the two managers since their 2017 start, and they have navigated those instances well. While the credit-riskier tilt of the strategy caused it to lag peers in the coronavirus-driven selloff of March 2020, that same quality benefited it in the subsequent recovery. With credit again out of favor in early 2022, coupled with upward interest-rate shifts, the managers’ timely decision to increase their liquidity bucket helped the strategy navigate the market downturn better than most. Together with the managers' thoughtful, disciplined approach to managing credit risk and their experienced analyst team, their solid record so far supports our positive view of this strategy’s process.”

—Elbie Louw, senior analyst

PGIM Short Duration Multi-Sector Bond Fund

• Share Class: PGIM Short Duration Multi-Sector Bond R6 SDMQX
• Morningstar Medalist Rating: Gold
• Morningstar Rating: ★★★★

Over the past 12 months, the $6.2 billion PGIM Short Duration Multi-Sector Bond Fund rose 6.36%, while the average fund in its category rose 6.00%. The PGIM fund, which launched in December 2013, has climbed 4.04% over the past three years and gained 3.34% over the past five years.

“PGIM Short Duration Multi-Sector Bond has produced higher volatility than its average short-term bond Morningstar Category peer but has shown it can produce enough return over the long haul to make up for it. Longtime comanagers Robert Tipp, Gregory Peters, and Richard Piccirillo each have 30 or more years of industry experience, and PGIM added Matthew Angelucci and Tyler Thorn to the team in 2023; they have been with PGIM since 2005 and 2015, respectively. An army of portfolio managers and analysts—most with double-digit years of experience—supports this crew, each with more than 125 members in its ranks.”

—Eric Jacobson, senior principal