Bond fund manager rankings show top performers over past three years

It is one thing to generate stellar returns during the good times; but which are the best-performing bond funds in all conditions? With the help of data specialist Morningstar, Credit tries to find the answers.

Assessing the performance of bond funds within a certain category is a fairly straightforward business over a short timeframe. It may be more complicated to do that over a longer horizon, but clearly it is a useful undertaking to be able to see how performance stands up in all conditions – whether fair or foul.

Credit asked data provider Morningstar to come up with a formula to do just that, with fund performance in 10 categories assessed over three 12-month periods: 31/12/2007 to 31/12/2008, 31/12/2008 to 31/12/2009 and 31/12/2009 to 31/12/2010.

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In addition to performance based on overall returns, a Sortino ratio was used to calculate risk-adjusted returns for each fund over the aggregate three-year period. The Sortino ratio was used rather than the Sharpe ratio as it factors in only downside risk in the denominator, while the Sharpe ratio penalises both upside and downside volatility. Since upside volatility is not necessarily negative for performance, the Sortino ratio is often considered a more realistic measure.

All the funds are percentile ranked within their respective categories, with the following weights applied: 30% for each of the three years under assessment, plus 10% for the three-year Sortino ratio. The weighted percentile ranking scores over each time period are then summed to derive an overall ranking. The maximum score a fund can achieve is 100. The lower the score, the better the fund has performed. The score is calculated to one decimal place.

As readers will see from the results, the giants of the asset management world are well represented across all categories, while specialists in a single asset class also showed their value.

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