For the most widely held bond funds in 2024, taking on riskier bonds was a winning strategy. Meanwhile, funds focused on longer-term, interest-rate-sensitive securities got hammered.

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The $172 billion PIMCO Income Fund PIMIX performed best of any of the largest active or index bond funds with its 5.4% return in 2024. PIMCO Income is the only multisector bond fund among the 10 largest active or passive bond funds. Funds in this category hold greater weightings of riskier assets than the intermediate core or core-plus categories that dominate the ranks of the most widely-owned bond funds.

Meanwhile, the $50 billion iShares 20+ Year Treasury Bond ETF index fund TLT was by far the worst performer among the group. With its portfolio of long-term bonds, which are more sensitive to changes in interest rates, the ETF lost 7.4% for the year.

More broadly, intermediate core bond funds gained an average of 1.8% for the year, while intermediate core bond funds returned 2.4%. Reflecting the outperformance of risker bonds, the best-performing category was high-yield bond funds, which averaged a 7.6% return. At the other end of the spectrum, the long-term bond fund category’s 0.9% average loss compared with a 5.1% gain for short-term bond funds and a 5.8% gain for ultrashort bond funds.

Here’s a look at how the largest mutual and exchange-traded funds fared in 2023. Performance data for this article was based on the lowest-cost share class for each fund. Some funds may be listed with share classes not accessible to individual investors outside of retirement plans. The individual investor versions of those funds may carry higher fees, which reduces returns to shareholders. The lowest-cost share class may be newer than the fund as a whole, and so gaps in longer-term data reflect the recency of the share class and not the fund itself, which may have older but higher-cost share classes. In addition, Medalist Ratings may differ among the share classes of a fund.

2024 Performance of the Largest US Bond Index Funds

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Out of the 10 largest US bond index funds, the Vanguard Short-Term Inflation-Protected Securities ETF VTIP had the highest total return, bringing in 4.8% for the year. The worst-performing fund was the iShares 20+ Year Treasury Bond ETF, which lost 7.8%.

Vanguard Short-Term Inflation-Protected Securities holds Treasury inflation-protected securities, or TIPS, which offer yields based on inflation plus a set amount, insulating them from higher inflation eating into their returns. “Short-term TIPS weren’t as sensitive to interest rate shifts in 2024 as other high-quality bonds, but they did get a boost to their total returns as a result of inflation,” says Eric Jacobson, director of manager research for US fixed-income strategies for Morningstar. “As of early December, the CPI had been up 2.7% for the trailing 12 months. That’s not that big a number in the grand scheme of things, but it made up a very good chunk of that fund’s total return for 2024.”

The iShares 20+ Year fund underperformed because even though the Fed is cutting interest rates, longer-term bond yields have been rising. The Fed mostly controls short-term rates, while longer-term rates are determined more by market expectations about the economy and inflation.

The TIPS fund was the best performer in its category, ranking in the 23rd percentile, while the worst-performing fund relative to its category was the $58 billion Vanguard Short-Term bond ETF BSV, whose 3.8% return put it in the 91st percentile for the US short-term bond category.

2024 Performance of the Largest Active US Bond Funds

In terms of total return, the best-performing name among the 10 largest actively managed US bond funds was the PIMCO Income Fund, which returned 5.3% for the year.

The best-performing fund relative to its category was the $49 billion JPMorgan Core Bond Fund JCBUX, which ranked in the 19th percentile for the intermediate core bond category. The fund benefitted from allocations to various securitized fixed-income assets such as mortgage-backed securities, according to Paul Olmsted, a senior manager research analyst for Morningstar.

Long-Term Performance of the Largest US Bond Index Funds

Over the past three years, bond returns were thrashed by the Federal Reserve raising interest rates, which sent bond yields up, tanking prices. Though the Fed cut rates in 2024, they are still higher than they were three or five years ago. Only two of the top 10 bond index funds, the Vanguard Short-Term Bond ETF and Short-Term Inflation-Protected Securities ETF, managed positive returns over the period, as short-term bonds are less affected by interest rate changes.

Over the past five years, returns were somewhat better, with four of the 10 managing a positive return. The best-performing fund over this period—in terms of both category ranking and total return—was the Vanguard Short-Term TIPS fund, whose 3.3% annualized return put it in the 19th percentile of the US short-term inflation-protected bond category.

The iShares 20+ Year Treasury bond ETF performed worst in terms of total return, falling by 8.3%, because longer-term bonds are more sensitive to rate hikes. The Vanguard Short-Term Bond ETF was the worst performer relative to its category, with its 1.2% return putting it in the 83rd percentile of the short-term bond category.

Long-Term Performance of the Largest Active US Bond Funds

Active funds were likewise beaten down over the past three years, with only three of the top 10 managing to produce a positive return. Over the past five years, these funds did much better, all boasting positive returns and ranking above average in their categories. One thing that helped was that none of the largest active bond funds were in the hardest-hit categories, such as long-term government bonds.

The best-performing active fund over both the last three and five years was the PIMCO Income Fund, which returned 2% per year over the past three years and 2.9% over the past five. That puts it in the 25th percentile of its category over three years and the 29th percentile over the past five; much better than the 63rd percentile ranking it garnered in 2024.

The best performer relative to its category over the past three years was the $76 billion Vanguard Intermediate-Term Tax-Exempt Bond Fund VWIUX, which sits in the 17th percentile of the municipal national intermediate bond category. Over five years, the best performer in this category was the $91 billion American Funds Bond Fund of America RBFGX, whose 0.6% return garnered it a ranking in the 11th percentile in the intermediate core bond category.