Long-duration bond strategies continued their dominance on the list of top-performing fixed-income managers, according to Morningstar Inc.'s separate account/collective investment trust database for the year ended June 30.
“Long-duration got a great boost when yields fell last year. When yields fall, they're going to do really well and when yields rise they're going to get hammered. That would apply to most of the funds here,” said Michael Herbst, director of manager research for fixed-income strategies at Morningstar in Chicago.
Seven of the top 10 fixed-income strategies in the separate account universe for the 12-month period were long-duration. The top 10 also included two strategies that Morningstar classifies as ultrashort, and with one high-yield bond strategy.
The median return for the domestic fixed-income universe was 1.6% and the Barclays U.S. Government/Credit index returned 1.7% for the year ended June 30. The median return for the long-duration universe for the same period was 1.7%.
Greystone Managed Investments Inc.'s long bond fund claimed the top spot on the one-year list, with a gross return of 9.8%.
“It certainly benefited from a long duration and Canadian exposure. The Canadian dollar rallied vs. the U.S. dollar the past quarter,” said Morningstar's Mr. Herbst.
NISA Investment Advisors LLC's 15+ STRIPS strategy, which invests in zero-coupon securities with a maturity date of 15 years or more, was in second place with a one-year gross return of 8.96%.
NISA's long-duration government-only consolidated strategy also made the top 10, ranking fourth for the 12 months with a 7.7% return.
“Of course the overwhelming majority of the return associated with these portfolios is related to their strategic purpose of hedging interest rate risk. As such, as rates have fallen generally over this period, the strategies have performed well and have helped to manage the plans' interest rate risk,” said David Eichhorn, St. Louis-based managing director, investment strategies, at NISA.
Hoisington Investment Management Co.'s macroeconomic fixed-income strategy was in third place for the fourth consecutive quarter, with a gross return of 8.8%. The strategy, which does not have a strict duration mandate, has held a long-duration Treasury position for the past year.
“We chose to be on the long end. We think there is great value on the long end of the curve and our view is that it will continue,” said Lacy Hunt, chief economist and executive vice president at Hoisington in Austin, Texas.