This is the seventh and final in my series of blogs on whether a passive or active approach performs better in the mutual fund space.
Our final article looks at the bond market, asking if there are indexing opportunities in all available bond asset classes. Well, the High Yield bonds space is definitely an interesting screening. Keep in mind I’m using Morningstar Direct as my source of screening, testing and research on return/expense data points.
So how does the U.S. High Yield Bond space fare in the active vs. passive debate? My points of fund screening include the following:
- Morningstar Category = High Yield Bond
- Fixed Income/Style Box (Long) = Medium
- Investment Area = United States of America
- Fund Inception Date = < 12/31/1999 (For a true picture of a 15-year return period comparison, as anything shorter than 10 years, I believe, can easily be misinterpreted.)
- Fund Share Class = Institutional Only
The results of the data search provided a total of 26 mutual funds. My data-points screening below indicates that of those 26 funds, none, not even one, was an Index Fund or an Enhanced Index Fund, leaving all 26 as actively managed funds.
- Indexed Funds = Yes or No
- Enhanced Indexed Funds = Yes or No
- Total Return Annualized 5 years trailing (Month End 9/30/15)
- Total Return Annualized 10 years trailing (Month End 9/30/15)
- Total Return Annualized 15 years trailing (Month End 9/30/15)
Again, to clarify, I believe it’s important to define one data point used above. Morningstar defines its Total Return Annualized as a return, net of any management, administrative, 12b-1 fees and other costs taken out of the fund’s assets, and doesn’t include sales loads or redemption fees. Of course, institutional share class funds generally have no sales loads; so therefore, I think we can assume the 5-, 10- and 15-year returns analyzed to be true total NET returns.
The following chart examines how well the passive vs. active funds argument pans out for the Institutional U.S. High Yield Bond space: