Mixed Performance for Bond and Hedge Funds in Q1 2024

Bond funds in the US experienced mixed results in the first quarter of 2024, according to the Morningstar US Core Bond Index. The index fell by 0.8% during this period. Long government Morningstar Category funds, which invest in long-dated Treasury bonds, saw a significant drop of 3.1%. On the other hand, bank-loan and high-yield bond funds saw gains of 2.3% and 1.7% respectively.

In more specific terms, Eaton Vance Floating-Rate Advantage and Fidelity Advisor Floating Rate High Income were among the top-performing bank-loan funds, while TCW Core Fixed Income and Invesco Core Bond were among the underperforming core bond funds.

The hedged Morningstar Global Core Bond Index experienced a slight decline of 0.1%, while the unhedged version dropped by 2.1%. BrandywineGLOBAL Global Opportunities Bond had a loss of 4.8%, while Dodge & Cox Global Bond lost 0.5% [231c0db6].

In a separate report, Dodge & Cox Income Fund provided its Q1 2024 commentary. The Fund noted that longer-term US Treasury yields rose during this period as investors reduced expectations for interest rate cuts. The market now expects three Federal Reserve rate cuts this year, compared to the six forecasted in January. The investment-grade corporate bond sector outperformed comparable-duration Treasuries, driving credit yield premiums tighter. The Fund trimmed several credit holdings, including AT&T, Pemex, and Ford Motor Credit, and invested the proceeds primarily in Treasuries. The Fund's diversified portfolio of Agency mortgage-backed securities (MBS) with low prepayment risk and compelling valuations was maintained. The Fund's duration remains at 6.0 years. Dodge & Cox believes interest rates are likely to fall over the coming years. The Fund's key contributors to relative results included credit issuer selection, overweight position in Financials, and Ginnie Mae-guaranteed Home Equity Conversion Mortgage holdings. The Fund's key detractors from relative results included overweight to Agency MBS and certain underperforming credit issuers [e4df3c3b].

According to a recent Morningstar article by Russel Kinnel, three funds have been performing poorly in the current market rally. Templeton Global Bond A is down 18% due to the decline in Tesla and Roblox shares. The fund also missed out on the gains from Nvidia. Templeton Global Bond TPINX has lost about 8% this year due to its bearish stance on the dollar and the US economy. Eventide Gilead ETGLX is down 6% and has been affected by diverse holdings like Xometry, Flywire, and Old Dominion Freight Line. The fund's idiosyncratic portfolio leads to varying performance [59279d9f].

Hedge funds also had a mixed performance in the first half of 2024. Caxton Associates, a macro fund, finished last month flat after a yearly performance to May-end that was up 4%. Bridgewater Associates' flagship fund was up 14.4% this year through June 26. The HFR Global Hedge Fund index gained 2.89% in the first half. Some multi-strategy hedge funds posted double-digit returns, including Cinctive Capital (11%) and Schonfeld Strategic Advisors' flagship fund (10.3%). Global fundamental long/short equities hedge funds gained 7.55% in the first half. On average, hedge funds struggled to keep pace with the MSCI's 47-country world stock index, which rose roughly 11% in the first half. Philippe Laffont's Coatue Management rose 9.2% in the first half. Aspect Capital's Diversified fund returned 14.27% for the year to end June. Hedge funds may face more challenges going forward due to higher uncertainty and richer markets [ce6729be].

Overall, while some bond funds have seen gains in the first quarter of 2024, others have underperformed due to various factors such as declining share prices and bearish stances on the market. The performance of these funds in the current market rally highlights the importance of careful fund selection and diversification for investors.