Long-duration and government bond managers led fixed-income strategy performance in the Morningstar Inc. Separate Account/Commingled Fund Database for the year ended Dec. 31 as subprime and credit woes roiled investors.
“It's a classic flight to safety,” said Steve Deutsch, director of separate accounts and collective investment trusts at Chicago-based Morningstar. The move is a “natural result of the upheaval” because longer-term bonds aren't typically affected by subprime effects; however, the result of that move was a “sea change” in terms of leading strategies, he said, as high-yield managers, which dominated the top spots for at least the past seven quarters running, fell far short this time.
“It doesn't look like any money managers on the high-yield side escaped the impact,” Mr. Deutsch said.
PanAgora Asset Management Inc., Boston, was the top performer with its multisector long/short strategy, which returned 16.1% for the year.
Two long-duration government managers took the next top spots, with Pacific Investment Management Co., Newport Reams Asset Management%, and Reams Asset Management, Columbus, Ind., at 11.6%. Boston-based Income Research & Management's intermediate Treasury inflation-protected securities portfolio and Hartford, Conn.-based Prudential Retirement's intermediate government strategy followed at 11.6% and 11.2%, respectively.
Rounding out the top 10 were: a multisector strategy by Western Asset Management Co., Pasadena, Calif., at 11.1%; long government mangers Hoisington Investment Management Co.Jennison Associates LLC72%, and Jennison Associates LLC, New York, at 10.68%; PIMCO's long-term full-authority strategy at 10.62%; and a mortgage-backed TCW Groups strategy by TCW Group, Los Angeles, at 10.3%.
The median return across all fixed-income strategies rose to 6.44% for the year while the Lehman Brothers U.S. Government/Credit Bond index returned 7.2%.