Long-term bond strategies continued to be the runaway top performers for the year ended Dec. 31, according to Morningstar Inc.'s separate account/collective investment trust database.
The top 10 performing separate account strategies were all long-term bonds, and the top seven were long government bond strategies. The long-bond strategy dominance completes a drastic change from the year ended June 30 when high-yield strategies made up six of the top 10.
“I think the message of the fourth-quarter top performing managers is pretty clear. The long-duration asset class and long government are by far the best performers in 2011,” said Adam Baranowski, team lead of Morningstar's separate account database. “Overall, domestic fixed-income strategies as a whole significantly outperformed their equity brethren.”
Overall domestic fixed-income separate account portfolios had a median 6.36% return for the year ended Dec. 31 while the median domestic equity return came in at -0.56%. The Barclays Capital Government/Credit index had a return of 8.74% for the year ended Dec. 31 while the Barclays Capital Long Government/ Credit Bond index returned 22.49%.
Long government portfolios easily had the highest median return among bond strategies for the year at 26.11%, followed by long-term bonds at 17.63%, Mr. Baranowski said.
“It's not that they have the secret sauce or anything, but it's more of that asset class just performing well,” Mr. Baranowski said of the six long-bond strategies that remained in the top 10 from the third quarter. “With long-duration strategies, the main risk involved is sensitivity to interest rates raises. Low interest rate changes bode well for that category.”
Inflation-protected bonds had a median return of 12.72%. The lowest median return category was money market portfolios at 0.37%.
High yield was the top performer for the fourth quarter, bringing in median returns of 5.86%. Long government had a quarterly median return of 1.84%, Mr. Baranowski said, while all domestic fixed-income strategies had a median return of 1.27%.