Best Fixed-Income Funds

Invest in the best fixed income funds today with Interactive Brokers or Webull.

The stock and bond market has something for investors of all kinds. You might associate the marketplace with high-risk investments like options, IPOs or penny stocks. But for those seeking dependable gains with low volatility, there’s another choice: fixed-income funds.

Fixed-income funds give investors regularly scheduled interest payouts on loans to bond issuers. They’re low-maintenance and low-risk. Benzinga found six such funds that can help portfolio managers diversify and shore up their holdings.

6 Best Performing Fixed-Income Funds

Here’s a table that shows the six best fixed-income funds.

1. Vanguard Total Bond Market Index Fund Admiral Shares (MUTF: VBTLX)

VBTLX is considered an intermediate-term bond with three-and-a-half to six years until maturity. Holdings in this fund are a mix of approximately 70% government bonds and 30% corporate. VBTLX tracks the Bloomberg Barclays U.S. Aggregate Float Adjusted Statistics Index.

This Vanguard fund has a mix of government, corporate, asset-backed and mortgage-backed securities. Management is relatively passive since the fund tracks the Bloomberg index instead of trying to outgain it. The expense ratio on VBTLX is appealingly low, which is typical for Vanguard funds.

2. iShares Core U.S. Aggregate Bond ETF (NYSEARCA: AGG)

This iShares exchange-traded fund (ETF) tracks the Bloomberg U.S. Aggregate Bond Index overseeing the entire domestic, investment-grade bond market. The AGG ETF is an intermediate-term bond with over 11,000 holdings. According to BlackRock, its effective duration is about 6.23 years. The AGG fund issues monthly interest payouts to investors and has an extraordinarily low expense ratio of 0.03%.

AGG managers aim to invest in at least 80% of the bonds monitored by the Bloomberg Index. The iShares ETF is one of the biggest index funds tracking the Bloomberg Index, with current assets totaling nearly $92 billion.

3. Schwab Long-Term U.S. Treasury ETF (NYSEARCA: SCHQ)

This Charles Schwab ETF tracks the Bloomberg US Long Treasury Index. It focuses exclusively on the U.S. Treasury bond marketplace. The SCHQ fund, launched in 2019, holds 77 securities with net assets topping $300 million. The bonds in this ETF are backed by the government and considered low risk. Its average yield to maturity hovers just short of the 4% mark.

Long-term indices, as the name implies, focus on long-range bonds. The effective maturity of the SCHQ fund is 16 years. It’s also got a low expense ratio of 0.03%

4. SPDR Bloomberg Barclays 1-3 Month T-Bill ETF (NYSEARCA: BIL)

This Standard & Poor’s ET tracks the Bloomberg Barclays 1-3 Month U.S. Treasury Bill Index. These T-bills, with their very abbreviated maturity terms, typically address short-range government efforts like debt refinancing and immediate operations. The SPDR ETF holds over $28 billion in net assets. 

This fund’s share price over five years is very consistent at approximately $91. The expense ratio is just a bit higher than the others on this list at 0.14%. It can be an ideal fund for those new to the investment process who want to see what instant returns look like.

5. BlackRock Allocation Target Shares: Series E Fund (NASDAQ: BATEX)

BlackRock’s Series E Fund tracks Bloomberg’s Municipal High Yield Bond Index, covering municipal bonds issued at the U.S. state or territory level. Launched in 2021, the BATEX fund holds over $60 million in assets with an effective maturity of almost eight years.

Since this fund deals with high-yield securities, it’s managed a bit more aggressively than the more passive funds in this post. It also incurs a bit more risk. But its average return at maturity stands at 4.87%, which is higher than other funds.

6. Vanguard Total International Bond ETF (NASDAQ: BNDX)

This Vanguard fund tracks the Bloomberg Global Aggregate ex-USD Float Adjusted RIC Capped Index. According to the BNDX prospectus, this ETF largely invests in “non-U.S. investment grade fixed-income investments all issued in currencies other than the U.S. dollar.” These include international government and corporate bonds.

Primarily covering Germany, France and Japan, the BNDX fund can be great for diversifying investors’ holdings outside the United States. It holds over 7,000 bonds with net assets valued at over $86 million. The ETF yields around 5.3% on an average effective maturity of nine years.

What is a Fixed-Income Fund?

A fixed-income fund is a portfolio that invests in debt security vehicles like bonds and bills. Investors “loan” money to the bond issuers, who pay off the interest of the loan in regular installments. Portfolio managers also pledge to pay back the entire loan principal to individual investors once the fund matures.

Most fixed-income investing comes in the form of government bonds, Treasury bills, asset- and mortgage-backed securities and high-yield bonds.

Importance of Fixed-Income Funds in a Portfolio

Investing in fixed-income funds gives you a few benefits.

Regular Income

Unlike other investments, fixed-income funds promise regular returns on interest, usually monthly. The entire loan principal is repaid at the end of the term.

Diverse Holdings

Fixed-income fund portfolios offer immediate diversity across several fund types. This helps to spread and manage the risk incurred.

Low Risk

Since most of the bonds and bills in a fixed-income fund are backed by governments and established corporations, it’s considered to be a relatively safe investment.

Inflation Protection

A fixed-income fund can work as a sort of hedge against inflation. Some securities may change their principal value in line with the movement of the Consumer Price Index (CPI), so investors' buying power is retained.

Where to Invest in Fixed-Income Funds

This table lists some potential marketplaces for fixed-income funds.

What to Consider When Investing in Fixed-Income Funds

While you might consider jumping in with both feet and investing straight away, there are a few factors you need to consider before you start.

Fund Type

Fixed-income funds come in several types. They include government, municipal, Treasury, global and corporate bond funds. They can be short-term or long-term, high-yield or investment-grade or certificates of deposit. 

Fees and Expenses Associated with the Fund

Review the fund’s expense ratio and consider what figure is too high for your tastes. You’ll also have various fees and commission charges or sales load, some of which you might not expect.

Historical Performance

As with any commodity you invest in, your fixed-income fund should have a track record. Metrics to look out for include the amount and consistency of returns, yield, interest rate sensitivity, liquidity and holdings’ credit quality. You might also decide to review who’s managing the fund and their previous achievements.

Credit Risk

Some fixed-income funds, like investment-grade bond funds, invest in solid securities with low credit risk. High-yield funds, though, tend to cover securities with more unpredictable credit. Check with a credit rating agency like Standard & Poor’s or Moody’s to see bond issuers’ credit records.

Investment Objectives and Risk Tolerance

The decision to invest in fixed-income funds should be weighed against your overall investment goals and level of risk tolerance. Given the wide range of outcomes with fixed-income funds, it’s especially important to consider your personal plan.

Fix Your Portfolio Up

A fixed-income fund can be a welcome port in a stock market storm. Its regular payouts, lower risk and low-maintenance management can provide a secure foundation when the economy is rough. For investors looking to diversify their holdings, fixed-income funds are as reliable as investments get.

Frequently Asked Questions

Best Income Funds Methodology

This evaluation of fixed-income funds considered:

• Return percentage rates
• Share price consistency
• Net asset value
• Length of term to maturity
• Management style
• Risk

When determining the best investment for your portfolio, keep these factors in mind for best results.