Best and worst bond funds of the decade

They would also have done well if they looked to Asia among emerging markets for incremental yield, and stuck with dollar assets unless the yield on a foreign currency bond justified hedging the exchange rate risk.

The US dollar appreciated about 25% against the euro, according to xe.com data, while the Bloomberg Barclays Global Aggregate US dollar bond index returned 27.72% during the decade, 10 percentage points better than the Bloomberg Barclays EuroAggregate index in US dollar terms (16.47%), according to FE Fundinfo.

However, the best performing broadly-based fixed income (in terms of duration and credit) index was the Bloomberg Barclays US Aggregate (44.45%).

Among bond fund categories, the best cumulative returns were posted by US (77.23%) and global (66.81%) high yield products; the worst were suffered by global and emerging market products invested in non-dollar short-term bonds.

In the SFC-registered fund universe, well-known bond markets specialists such as Pimco figured near the top of the list in several categories. But the standout performer — perhaps signalling the start of the “Asia century” — was the $937m BEA Union Investment Asian Bond and Currency Fund, which posted a whopping 119.05% cumulative return between 1 January 2010 and 31 December 2019, according to FE Fundinfo.

Its bond holdings are dollar-denominated, and its major geographical exposure is China, followed by Indonesia and India, with a hefty 49% allocation to non-investment grade bonds issued by property companies, according to the fund’s most recent fact sheet.

Managed by Pheona Tsang since 2012, the fund has been awarded five stars by Morningstar and the equivalent five crowns by FE Fund info.

The second best performer was the $2.8bn Pimco GIS US High Yield Bond Fund (103.51%), managed by Andrew Jessop and Hozef Arif, followed by the $4.7bn Principal GIF Preferred Securities which invests in mixture of bonds and preference shares to generate income and capital growth.

Global bond markets were largely driven by the decade-long strength of the US Treasury market. The yield on the 10-year US Treasury bond started the period at 3.83%, and closed at around 1.80% in December 2019, according to the US Treasury Department.

There were short-lived phases when the yield spiked higher — summer 2013, May 2015, winter 2017 and autumn 2018 — but the general trajectory was downward, as the US Federal Reserve continued to pump cash into the markets and the economy through low interest rates and quantitative easing. The 10-year treasury yield hit a record low of 1.37% in July 2016, and came close to that milestone in September 2019, falling to 1.47%.

Funds that focused on short duration high-quality bonds, whose yields were even lower than the US Treasury bond rate (during a period when the yield curve was almost invariably positive), had a tough time.

The worst three performing funds during the decade focussed on the short end of the curve, constantly battling reinvestment risk, and also had the misfortune to be denominated in a falling currency – the euro.

Top 3 performing fixed income funds of the decade

Source: FE Fundinfo. All data in US dollars, 1 January 2010 – 31 December 2019

*Funds authorised for sale in Hong Kong and/or Singapore

Bottom 3 performing fixed income funds of the decade

Source: FE Fundinfo. All data in US dollars, 1 January 2010 – 31 December 2019

*Funds authorised for sale in Hong Kong and/or Singapore

Fixed income sector average performances in the 2010s

Source: FE Fundinfo. 10-year cumulative returns in US dollars.