Long, extra long and high-yield strategies were well represented among the 10 best-performing bond portfolios for the year ended June 30, according to the manager performance database of Morningstar Inc.
Managers said interest rates favored long and high-yield bond managers this quarter.
The best overall one-year performer among separate accounts was the Extra-Long Duration Bond portfolio run by Bridgewater Associates Inc., Westport, Conn., which returned 36.7%. In second place was Austin, Texas-based Hoisington Investment Management Co.'s fixed-income composite, which returned 28%, followed by the Active Extra-Long fund of Jennison Associates LLC, New York, which returned 23.1%. Rounding out the top five were Credit Suisse Asset Management LLC, New York, which posted 22.9% for its Total Commodity Return fund, and NISA Investment Advisors LLC, St. Louis, which returned 22.3% for its Long Duration Consolidated portfolio.
The top managers easily beat out their fixed-income benchmarks. The Citigroup Broad Investment Grade bond index returned 7% for the year, while the Lehman Brothers High Yield Bond index returned 10.9% for the same period.
Lacy H. Hunt, executive vice president at Hoisington, which has $4.3 billion in assets, said the firm believes that by basing its investment decisions on the multiyear trend in the inflation rate, it is able to provide the maximum return for bond investors.
Hoisington Management is convinced that this policy of maintaining maximum flexibility with the maturity structure of the portfolio provides clients with the greatest possible protection against capital losses over any sustained bear market. During periods of falling inflation, accounts are positioned at the long end of the maturity curve. When inflation rises sharply, the investments are very short in maturities, he said.
When asked if he expects the portfolio's strong performance to continue, Mr. Hunt said: "It will be volatile quarter to quarter, but if we stick to the discipline, it will be quite outstanding." Mr. Hunt said the fund invests solely in U.S. treasuries.