Top 6 Best Bond Funds | Corporate and Government Bonds
First, let's get the disclaimer out of the way: it is important to note that the list of top performing bonds discussed here is not all comprehensive.
There are a lot more corporate and government bond funds that can be considered "top / best performing" bonds.
What we aim to acheive with this article is to present an analysis of six of the top performing corporate bonds funds, plus two additional government bonds.
Okay, let's move on..
Key Selection Factors
When doing research on the best bond funds to invest in, bond investors normally consider at least four key variables to help them identify the best performing bonds.
|
# |
Key Variable |
Bond Considerations |
|
1 |
Total Bond Return |
** High priority for most bond investors. In addition to a bond fund’s yield, investors also evaluate the fund’s total return, which is the combination of yield and the return provided by principal fluctuation |
|
2 |
Taxes |
Some bonds are exempt from certain tax jurisdictions. In some cases, taxes can be waived altogether depending on how the bond is used upon expiration |
|
3 |
Bond Risk |
While high potential returns on your investment are great, they can mask a significant risk factor in the historical performance of the bond. As such, it is essential that you consider the overall risk of the bond that you are interested in |
|
4 |
Performance Duration |
As we have done below, it is important that you analyze the respective 3-month, 3-year and 5-year bond return information in addition to their YTD (year-to-date) or 1 year returns |
Comparison Ranking of the 6 Best Corporate Bond Funds | Review
Below is a high level ranking and comparison table that presents a snapshot of the 6 best bonds and how they differ in terms of their return on investment.
The table is followed by a brief overview of each top bond funds and additional information on why they were selected.
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Corporate Bond Funds
|
Annualized Returns |
Glenmede Large Cap 100 |
T. Rowe Price Retirement 2035 |
Federated High Yield Trust Fund |
MFS International Diversification R3 |
T. Rowe Price Institutional High Yield Fund |
BlackRock High Yield Bond Fund – Investor A |
|
Symbol |
GTLOX |
TRRJX |
FHYTX |
MDIHX |
TRHYX |
BHYAX |
|
3-Month Return |
7.08% |
7.71% |
4.87% |
8.97% |
4.49% |
4.51% |
|
1 Yr Return |
25.82% |
18.46% |
13.1% |
12.75% |
9.7% |
9.25% |
|
3-Year Return |
18.76% |
13.1% |
11.9% |
9.39% |
9.3% |
9.75% |
|
5-Year Return |
11.89% |
10.4% |
20.7% |
8.35% |
17.0% |
12.44% |
|
Rank* |
1 |
2 |
3 |
4 |
5 |
6 |
* Rank: Ranking is based on 1 Yr Annualized Return
* Data is accurate as of 2014
Did We Just Look at Corporate Bonds?
No. We assessed both government issued bonds and corporate bonds. While the risk is often higher with corporate bonds, they generally represent a better return than government bond funds.
Below are two government bonds that investors might want to consider as part of their investment portfolio
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Government Bond Funds
|
I Savings Bonds |
EE Savings Bonds |
|
|
Type of Bond |
Government |
Government |
|
Tax Exemptions |
Federal |
Federal |
|
3-Month Return |
Varies |
Varies |
|
YTD Return |
+1.38% |
+0.10% |
|
3-Year Return |
Varies |
Varies |
|
5-Year Return |
Varies |
Varies |
|
Special Note |
I Savings bond funds earn interest and also have an inflation-tagged protection. |
Despite a low Return, EE Bonds have been added due to their dependable nature. They represent one of the safest investing opportunities. |
Top 6 Corporate Best Bond Funds – Brief Overview
(1) Glenmede Large Cap 100
Glenmede Large Cap 100 is ranked number 1 on our list of the top best bond funds.
This fund is part of the Glenmede fund family, and is one of the best performing corporate bonds.
Glenmede is a privately owned trust with over $22 billion in their bond portfolio. The trust focuses on long term growth combined with maximum long-term total return.
Glenmede Large Cap 100 – Best Bond Fund
Although the Glenmede Large Cap 100 does present a higher risk factor than some other bonds, its potential "future returns" make it an attractive investment.
(2) Rowe Price Retirement 2035
A global financial services firm with a focus on retirement plans and financial stability, T. Rowe Price has a global footprint with $9 billion in net assets. Being a retirement specific investment instrument, T. Rowe’s bond fund “T. Rowe Price Retirement 2035” aims to offer high returns for the long term.
The emphasis for this bond fund is capital growth and income appreciation. Currently, the bond is structured around a specific retirement date (2035) and invests 86.5% in stocks and 13.5% in bonds.
T. Rowe Price Retirement 2035 – Ranked #2 Best Bond Fund
(3) Federated High Yield Trust Fund
The Federated High Yield Trust Fund is structured to generate a high rate of income. It is heavily invested in a diversified portfolio of high-yield, lower-rated domestic corporate bonds.
Its investment adviser selects securities that it believes has attractive risk-return characteristics. According to U.S. News Money, "The fund may also opportunistically invest up to 20% of its assets in convertible securities, equity securities and other derivative contracts to implement its investment strategies"
Although it aims to provide a high rate of income, investors should note that the fund's management fees are above normal (compared to similar funds), according to Morningstar.
Chart – Federated High Yield Trust Fund
(4) MFS International Diversification R3
MFS International Diversification R3 is an investment fund that focuses on capital appreciation.
The fund aims to provide diversification within the international asset class and ploughs its assets into other mutual funds in the US and across the world.
The MFS International Diversification R3
The fund has major holdings in the likes of Nestle, Japan Tobacco Inc., HSBC Holdings PLC and Reckitt Benckiser Group PLC. MFS itself is a global asset manager and has around $3.5 billion worth of assets under management.
The MFS International Diversification R3 bond is a steady investment choice designed to provide a sizable return over a medium time period and isn’t seen as being a high risk investment option.
(5) T. Rowe Price Institutional High Yield Fund
T. Rowe Price Institutional High Yield Fund is an open-end fund. Although the fund is structured to be a high income investment vehicle, it also has capital appreciation as a secondary priority, according to Bloomberg News.
Over 80% of the fund’s net assets are invested in a well-diversified portfolio of high-yield junk bonds, income-producing convertible securities, and preferred stocks.
Chart – T Rowe Price Institutional High Yield Fund
(6) BlackRock High Yield Bond Fund – Investor A
BlackRock's High Yield Bond Fund is structured to maximize the total return that can be earned. The fund invests in growing industries like Independent Energy, Technology, Automotive, Healthcare, Gaming, Metals and Mining, Lodging, and Wireless.
It was started in 1998 and has a 2083 benchmark date. Total size of the fund is $11.8 billion
Risk Measures – BlackRock High Yield Bond Fund
BlackRock high yield bond fund prospectus
Government Bonds – Brief Overview
I Savings Bonds
Our first government issued bonds on the list. I Savings Bonds represent decent long term investments without the risk associated with other bond investments. I Savings bond funds earn interest and also have an inflation-tagged protection.
The price for I Savings bonds are set twice a year but can be purchased anytime.
The minimum term of ownership is 1 year.
EE Savings Bonds
Perhaps a controversial choice to add given their comparatively low returns, EE Savings Bonds have been added due to their dependable nature.
They represent one of the safest investing opportunities.
The government issued bonds have an annual rate of 0.10% which is below anything else on our above list of top bonds. However, we consider it one of the best bond funds based on its dependability and stability.
EE savings bonds might not be high performers, but over the course of their lifetime they are one of the soundest investments for ordinary investors. EE Savings Bonds are tax exempt if they are used to pay for higher education upon maturity.
Smart Investing in Corporate Bonds and Government Bonds
Bonds represent a smart and secure way in which to invest your money. While there have been concerns over bond prices based on rising interest rates, bonds still offer one of the most dependable ways to increase your investment over a period of time.
Some of the bonds we have listed are riskier than others. Corporate bonds tend to offer higher returns than government bonds, but have a bigger element of risk to them. However, they are certainly safer than stocks.
Investing in corporate bonds, treasury or government bonds is a great way to safeguard your financial future. However, like any investment option, it should be treated with caution even if it does signify a safer and more secure return on your investment.
Corporate bonds will give a better return for ordinary investors. But, as already mentioned, you are taking on more risk.
Special Note
The above top performing bonds have been selected based on how well they performed in the past.
Such performance might not be repeated in the current year or in the subsequent years.
Whether you are investing in bonds, stocks, derivatives, options, etc., it is important to note that past performance does not guarantee a similar performance in the future.
As such, it is highly recommended that you seek professional advice before buying bonds or investing in stocks.
