Worst bond fund returns of 2019

With corporates leading the industry’s top-performing fixed income funds of 2019, it’s no surprise government bonds were among the worst.

Unlike those with the biggest gains, all of the 20 bond funds with the lowest returns last year focused on government debt, according to Morningstar Direct. The funds, home to a combined $116 billion in assets under management, expectedly suffered as a result of the low interest rate climate, according to Bankrate senior analyst Greg McBride.

“In a year when interest rates decline, like 2019, the bond funds with the lowest returns are going to be shorter-term bond funds because they don’t see the price appreciation of longer-maturity bonds,” McBride says.

Nearly all of last year's worst-performing fixed income funds shorted municipal bonds and Treasurys, data show. With an average gain of less than 2%, these funds were significantly outpaced by the broader Bloomberg Barclays Aggregate Bond Index’s 8.46% gain, as measured by the iShares Core US Aggregate Bond ETF (AGG).

Fees, however, were lower than the broader fund industry. With an average net expense ratio of 0.33%, these bond funds were right on target with the top-performers’ average fee of 33 basis points, but 0.15% cheaper than the 0.48% investors were charged, on average, for fund investing last year, according to Morningstar’s most recent annual fee survey, which reviewed the asset-weighted average expense ratios of all U.S. open-end mutual funds and ETFs.

The largest bond fund, the $248.6 billion Vanguard Total Bond Market Index Admiral Shares (VBTLX), had a 0.05% expense ratio and 8.71% return in 2019, data show. (On the equity side, the biggest overall fund, the $897.7 billion Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX), had a 0.04% expense ratio and a 30.8% return over the same period.)

“All else being equal, short-term bond funds tend to have lower returns than longer-term bond funds because of lower coupon rates,” McBride explains. “But the lower returns are particularly pronounced in a year where interest rates decline as higher duration bonds get a bigger boost in value, relatively speaking.”

Scroll through to see the 20 fixed-income category mutual funds and ETFs with the worst returns as of 2019. Funds with less than $500 million in AUM and investment minimums over $100,000 were excluded, as were leveraged and institutional funds. Assets and expense ratios for each, as well as three-year net flows and year-to-date returns, are also listed. The data shows each fund's primary share class. All data from Morningstar Direct.

Tax-Advantaged Ultra-Short Fixed Income Fund (NTAUX)
Vanguard Short-Term Tax-Exempt Fund Admiral Shares (VWSUX)
DFA One-Year Fixed Income I (DFIHX)
Fidelity Series Treasury Bill Index (FHQFX)
Invesco Treasury Collateral ETF (CLTL)
Virtus Seix U.S. Government Securities Ultra-Short Bond Fund I (SIGVX)
iShares Short Treasury Bond ETF (SHV)
Goldman Sachs Acccess Treasury 0-1 Year ETF (GBIL)
SEI Short Duration Municipal Fund (STET) (SUMAX)
Fidelity Strategic Advisers Tax Sensitive Short Duration (FGNSX)
WisdomTree Floating Rate Treasury ETF (USFR)
SPDR Bloomberg Barclays 1-3 Month T-Bill ETF (BIL)
Templeton Global total Return Fund (TTRZX)
Wells Fargo Ultra Short-Term Municipal Income Funds (WUSRX)
Franklin Adjustable US Government Securities Fund (FISAX)
Load: 2.25%
six Circles Tax Aware Ultra Short Duration Fund (CUTAX)
DFA Short Term Municipal Bond I (DFSMX)
DFA California Short-Term Municipal Bond I (DFCMX)
Templeton Global Bond Advisor Shares (TGBAX)
T. Rowe Price Dynamic Global Bond Fund Investor Shares (RPIEX)