Israeli Bond Funds Suffer in Q3 Amid Rising Yields
Translated & summarized from Bizportal by baba
Only 20 out of 102 Israeli general bond funds posted positive returns in the third quarter due to rising yields. While most funds remained profitable for the first three quarters of 2023, many struggled to outperform the market index. Long-term performance over five years shows stronger returns, especially for corporate bonds, though fund selection remains crucial.
The story in 5 lines · by baba
- Only 20 of 102 Israeli general bond funds achieved positive returns in Q3.
- Rising bond yields caused losses for the majority of general bond funds.
- Most funds were still profitable year-to-date, but many underperformed the index.
- Long-term five-year returns show stronger performance, particularly for corporate bonds.
- Shorter-duration bond funds generally fared better during the Q3 downturn.
In the third quarter of the year, a significant majority of Israeli general bond funds experienced losses, with only 20 out of 102 funds achieving positive returns. This downturn is attributed to a sharp rise in bond yields, which negatively impacts bond prices. The overall All-Bond index lost 0.22% in the quarter, though it remained positive at 2.4% for the first three quarters of the year. The Israeli bond market's performance mirrored global trends, where rising yields have been a concern.
Despite the challenging third quarter, most bond funds still showed positive returns for the first three quarters of 2023, with 97 out of 100 active funds in the green. However, less than half of these funds managed to outperform the general All-Bond index. The situation was slightly worse in the third quarter, with only 37 out of 102 funds surpassing the index.
Looking at longer-term performance over five years, the picture is more positive, particularly for corporate bonds which have shown strong double-digit returns. The general index has returned 9.12% over five years, and most funds that have operated for this entire period have outperformed the index, though this is partly due to a survival bias where less successful funds have closed.
Analysis of specific fund types reveals that shorter-duration bonds generally performed better in the declining market of the third quarter, as they are typically less sensitive to interest rate changes. Conversely, funds with longer maturities saw greater losses. The article also highlights significant variations in performance among individual funds, with some consistently leading or lagging across different timeframes, influenced by factors like management fees and investment strategy, such as focusing on high-risk bonds.
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