It’s no secret that many active fund managers fail to beat their benchmarks over the long term, but investor trading activity in those funds is even worse. A Morningstar examination of investor returns in the largest active bond funds revealed self-destructive behavior by investors. According to Morningstar, investors in the 20 largest Intermediate Core Plus Bond funds, which have 10-year records, were so bad over the last ten years that they gave up more return than the Bloomberg US Aggregate index delivered. The average fund returned 2.11% annualized for the last ten years ending in August, while the Bloomberg US Aggregate index returned 1.35% return. Surprisingly, every single one of the 20 funds outperformed the index, but investors were not able to take advantage of this outperformance. Investors lost 75% of the average return the funds delivered, ending up with an 0.53% annualized return. Poor timing can account for the dismal returns for investors. Between 2021 and 2022, investors added $91 billion to the category looking for extra yield over the aggregate index. Unfortunately, this coincided with inflation which led to intermediate-term bond prices falling.

Finsum: Investors poured money into active fixed-income funds at the worst possible time, leading to massive underperformance compared to the funds.