Fixed income securities and bond funds can lose value, and investors can lose principal, as interest rates rise. They also may be affected by economic conditions that hinder an issuer’s ability to make interest and principal payments on its debt. They may also be subject to prepayment risk, the risk that the principal of a fixed income security that is held may be prepaid prior to maturity, potentially forcing the fixed income securities or bond funds to reinvest that money at a lower interest rate. High yielding, non-investment-grade bonds (junk bonds) involve higher risk than investment grade bonds. The high yield secondary market is particularly susceptible to liquidity problems when institutional investors, such as mutual funds and certain other financial institutions, temporarily stop buying bonds for regulatory, financial, or other reasons. In addition, a less liquid secondary market makes it more difficult for the fixed income securities and bond funds to obtain precise valuations of the high yield securities in its portfolio.
Average active Intermediate term bond manager refers to the Morningstar Intermediate-Term Bond Category and compares funds that invest primarily in corporate and other investment grade US fixed income issues and typically have durations of 3.5 to 6.0 years. These funds are less sensitive to interest rates, and therefore less volatile, than funds that have longer durations.
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The Bloomberg Barclays US Aggregate Index is a broad composite that tracks the investment grade domestic bond market.
Intermediate-term bond portfolios invest primarily in corporate and other investment-grade U.S. fixed-income issues and typically have durations of 3.5 to 6.0 years. These portfolios are less sensitive to interest rates, and therefore less volatile, than portfolios that have longer durations. Morningstar calculates monthly breakpoints using the effective duration of the Morningstar Core Bond Index in determining duration assignment. Intermediate-term is defined as 75% to 125% of the three-year average effective duration of the Morningstar Core Bond Index.
The average passive intermediate term is the average passive fund in the Morningstar intermediate term bond category. The leading decile active intermediate term is the top decile actively managed fund in the Morningstar intermediate bond category. The max active intermediate term is the best performing active fund within the Morningstar intermediate bond category.