5 Top-Performing Core Bond Funds

After a rough start to the year, core bond funds finished January up 0.5%. Softer-than-expected December core inflation sent bond yields lower and gave prices a mid-month boost.

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. Offerings from JPMorgan stood out, taking up two of the five funds. All names that passed the screen were actively managed.

• Baird Aggregate Bond Fund BAGIX
• JPMorgan Core Bond Fund JCBUX
• JPMorgan Mortgage Backed Securities Fund JMBUX
• Neuberger Berman Core Bond Fund NRCRX
• Vanguard Core Bond Fund VCOBX

Intermediate Core Bond Funds Performance

Over the last 12 months, intermediate core bond funds have returned 2.87%. On an annualized rate, these funds have declined 1.19% over the last three years and lost 0.36% over the last five years. That compares with the Morningstar US Core Bond Index, which has returned 2.73% over the last 12 months, lost 1.18% per year over the last three years, and lost 0.50% per year over the last five years.

What Are Intermediate Core Bond Funds?

Intermediate-term core bond portfolios invest primarily in investment-grade US fixed-income issues including government, corporate, and securitized debt, and hold less than 5% in below-investment-grade exposures. Their durations (a measure of interest-rate sensitivity) typically range between 75% and 125% of the three-year average of the effective duration of the Morningstar Core Bond Index.

Screening for the Top-Performing Intermediate Core Bond Funds

To find the best intermediate core bond funds, we looked at returns data from the past one, three, and five years 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 Morningstar Medalist Ratings of Bronze, Silver, or Gold. We excluded funds with assets under $100 million and analyst coverage that was not 100%. This left five funds.

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.

Baird Aggregate Bond Fund

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

Over the past 12 months, the $51.7 billion Baird Aggregate Bond Fund rose 3.26%, while the average fund in its category rose 2.87%. The Baird fund, launched in September 2000, has dropped 0.78% over the past three years and 0.06% over the past five.

Morningstar director Alec Lucas says: “The approach is simple but effective. Sticking to USD-denominated bonds without the complications of derivatives or leverage, it begins with matching the Bloomberg US Aggregate Bond Index’s overall interest-rate sensitivity, or duration. In line with the fund’s intermediate core bond Morningstar Category, the team takes most of its credit risk in the investment-grade space. While it can hold on to bonds that have lost their investment-grade rating, it does not buy them. The portfolio’s junk bond allocation has been 1% or less since 2015, and at year-end 2023, its 0.1% stake in debt rated below BBB ranked in the peer group’s bottom half.”

JPMorgan Core Bond Fund

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

Over the past 12 months, the $48.7 billion JPMorgan Core Bond Fund rose 3.39%, while the average fund in its category rose 2.87%. The JPMorgan fund, launched in February 2005, has dropped 0.56% over the past three years and gained 0.17% over the past five.

Morningstar senior analyst Paul Olmsted says: “Figuly’s emphasis on diligent, bottom-up security selection to ensure this fund consistently delivers is rooted in decades of experience. He began managing core portfolios at JPMorgan in 2002 and rose to become head of JPMorgan’s US Core Bond team. Rucker, meanwhile, has more than two decades of managing taxable-bond portfolios. The team draws on JPMorgan’s vast global resources to drive sector allocation and security selection, the foundation for this fund’s value-driven approach, including a long-standing bias to securitized debt of various structures and corporate bonds.”

JPMorgan Mortgage Backed Securities Fund

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

Over the past 12 months, the $5.9 billion fund has gained 3.77%, while the average fund in its category is up 2.87%. The JPMorgan fund, launched in February 2005, has climbed 0.02% over the past three years and 0.57% over the past five.

Olmsted says: “The strategy’s heavy MBS stakes differentiate it from intermediate core bond peers who typically manage to the Bloomberg US Aggregate Bond Index, which features a mix of Treasuries, investment-grade corporates, and agency MBS. The portfolio consists of agency residential and commercial MBS, typically accounting for 65%-80% of assets. This sets it apart from the typical peer, which has historically ranged between 25% and 30% for similar bonds.”

Neuberger Berman Core Bond Fund

• Morningstar Medalist Rating: Bronze
• Morningstar Rating: ★★★★

Over the past 12 months, the $929.3 million Neuberger Berman Core Bond Fund rose 3.25%, while the average fund in its category rose 2.87%. The Neuberger Berman fund, launched in January 2019, has dropped 0.91% over the past three years and gained 0.17% over the past five.

Morningstar analyst Max Curtin says: “This robust approach is built on collaboration. Analysts and sector managers work in tandem to forecast return distributions, a key component in the firm’s quantitative optimizer model. Comanagers maintain the final say on finalizing sector allocations (although they lean heavily on the model’s proposed optimal weightings), and analysts drive bottom-up security-selection decisions. More comfort around the managers’ approach to risk-taking, specifically with respect to limiting the portfolio’s foreign currency exposure, improves our long-term outlook for the strategy.”

Vanguard Core Bond Fund

• Morningstar Medalist Rating: Bronze
• Morningstar Rating: ★★★★

Over the past 12 months, the $12.8 billion fund has gained 3.37%, while the average fund in its category is up 2.87%. The Vanguard fund, launched in March 2016, has dropped 0.84% over the past three years and gained 0.25% over the past five.

Morningstar associate analyst Ken Noguchi says: “The fund’s seasoned managers average more than two decades of industry experience each. Quigley brings mortgage-backed securities and agency debt market expertise and has been named on this strategy since its March 2016 inception. He co-leads this strategy alongside Shaykevich, who is co-head of the emerging markets and sovereign debt team. Shaykevich joined the team in 2018 after the former manager’s retirement, and Narayanan joined Vanguard in 2019 from State Street Global. As with other Vanguard fixed-income strategies, this one benefits from access to robust firmwide resources. The management team, however, balances numerous responsibilities, which could challenge its focus on this strategy.”