Long-duration bond strategies accounted for every one of the 10 best-performing fixed-income managers for the year ended Dec. 31, according to Morningstar Inc.'s separate account/collective investment trust database.
“For long duration, you"ve had median returns which are quite a bit above all of the other categories,” said Nicholas Sundberg, Chicago-based data analyst separate accounts at Morningstar.
For the year ended Dec. 31, the median return for long-duration strategies was 17.77%. Limited- and intermediate-duration strategies had median returns of 1.28% and 5.55%, respectively. Domestic high yield had a median return of 2.35%.
For the full fixed-income universe, the median return for 2014 was 4.05% and the Barclays Government/Credit index returned 6.01%.
The second half of 2014 saw a dramatic change over the first half of the year. For the 12 months ended June 30, seven of the top 10 fixed-income strategies in the separate account universe were in Morningstar's high-yield bond categories.
“As a general rule, whatever is happening in investment-grade credit, that effect on steroids is what's happening in high yield,” said Jess B. Yawitz, chairman and CEO at St. Louis-based NISA Investment Advisors LLC. So since credit market returns in general were volatile, high-yield returns were especially volatile.
The one-year gross return of 42.92% for NISA's 15+ STRIPS strategy, putting it at the top of the overall fixed-income universe for the second consecutive quarter.
“Looking back to 13 months ago, there was a strong consensus that (Treasury) yields in the U.S. would rise significantly,” Mr. Yawitz said. “The big story is that not only didn't rates go up significantly, not only didn't they stay the same, they went down dramatically.”
Also benefiting from the decline in Treasury rates was NISA's long-duration government-only consolidated strategy, which ranked second for the year, its second consecutive quarter in that position. Its one-year gross return was 35.52%.
Both the NISA strategies also were among the top five domestic strategies for 2014 in Morningstar's universe.
The macroeconomic fixed-income strategy of Austin, Texas-based Hoisington Investment Management Co. was in third place on the one-year rank, retaining that ranking for the second consecutive quarter, with a gross return of 33.13%. Fourth for the year was New York-based Ryan Labs Inc.'s long government strategy, with a one-year gross return of 25.82%.