Bond indexes are used as benchmarks against which the performance of bond and stock funds is judged. A common bond index is the Bloomberg U.S. Aggregate Index, or Agg. It is easier to beat because it holds only investment grade debt. It covers only 52% of the public bond market while the S&P 500 covers 81% of stocks by market value.
As of 2024, nine out of ten active bond funds use Agg as their benchmark, with 59.4% beating the benchmark in recent years compared with 38.8% for active stock funds against their benchmarks. Agg returned only an average of 1.8% per year over the 10 years to September 2024. But an active bond or stock fund that goes into riskier bond or stocks should earn a higher return for that risk than Agg: Their return relative to Agg is not necessarily superior performance.
Source: Wall Street Journal, December 9, 2024.