Long-duration and government bond managers led fixed-income performance in the Morningstar Inc. Separate Account/Commingled Fund Database for the year ended March 31, reaping a premium for safety.
“Money managers that have concentrated on security — and particularly long government-owned fixed income — have come to the top,” said Steve Deutsch, director of separate accounts/collective investment trusts, at Chicago-based Morningstar.
Long-government managers took five of the top 10 Morningstar performance slots for separate accounts in the March 31 rankings. High-yield managers, which had dominated the upper echelons of the performance charts throughout much of 2006 and 2007, were far off the mark during this most recent reporting year. That's testament to the damage that subprime turmoil has had on investor confidence and credit markets, Mr. Deutsch said.
“What's happened with subprime is that risk has just become radioactive,” Mr. Deutsch said. “People were not paying any premium for risk last year, and now there's plenty of premium if you take on risk. Unless there's a dramatic change in the market and a complete reversal in the risk appetite yet again, I'd be hesitant to say high-yield has a long-term positive outlook.”
TCW Group Inc., Los Angeles, was the top performer in the separate account overall fixed-income category with its long-government strategy, which returned 20.07% for the year. Western Asset Management Co., Pasadena, Calif., took second with its global sovereign intermediate-term bond strategy, which returned 17.53%.
Multisector managers nailed down the next two slots, with Baring Asset Management, Boston, returning 17.48% for its global aggregate strategy and PanAgora Asset Management Inc., Boston, returning 15.4% with a long/short strategy.
Rounding out the top five was Income Research and Management, Boston, whose intermediate government Treasury inflation-protected securities strategy returned 14.9% for the year.
The next four slots went to long-duration government managers, with the following returns for the year: Pacific Investment Management Co., Newport Beach, Calif., 14.7%; Reams Asset Management Co., Columbus, Ind., 14%; Hoisington Investment Management Co., Austin, Texas, at 13.9%, and Jennison Associates LLC, New York, at 13.7%. Prudential Retirement's intermediate strategy took 10th place, with a return of 12.6% for the year.
The median return was 6.48% for the year, while the Lehman Brothers U.S. Government/Credit Bond index returned 8.36%.