In recent years, short- and intermediate-term bond funds – portfolios investing in debt securities with a maturity of one month to 10 years – have enjoyed a sizable performance advantage over longer-term bond strategies, according to Fidelity Portfolio Manager Rob Galusza, who also is drawn to these comparatively short-term securities for what he considers compelling long-term attributes.
“Short- and intermediate-term bond funds have had a nice run, and we believe that, in all markets, they offer a compelling mix of characteristics, including performance comparable to diversified (core) investment-grade bond funds, but with lower risk,” says Galusza, who co-manages Fidelity® Short Term Bond Fund (FSHBX), Fidelity® Limited Term Bond Fund (FJRLX), Fidelity® Limited Term Bond ETF (FLTB), Fidelity® Intermediate Bond Fund (FTHRX) and other portfolios, along with Julian Potenza, David DeBiase and John Mistovich. This team, plus Maura Walsh, also co-manages Fidelity® Conservative Income Bond Fund (FCNVX).
In helming these strategies, the managers concentrate on areas where they believe they can repeatedly add value, including asset allocation, sector and security selection, yield-curve positioning and opportunistic trading.
Galusza acknowledges that the recent outperformance of shorter-duration bond funds has been aided by a unique set of circumstances. In the bear market of 2022, the U.S. Federal Reserve tightened monetary policy by raising its policy interest by four percentage points, from near zero to a range of 4.25% to 4.5%. The Fed then raised its benchmark rate another 100 basis points in 2023 before stopping, then pivoted to lowering rates in mid-September 2024.
This resulted in the bond yield curve becoming notably inverted from roughly 2022 to 2024. Galusza explains that short-term bond issues yielded a better interest rate than longer-term bonds, the opposite of a “normal” curve, which reflects a more customary bond market in which investors receive a premium rate as an incentive to invest for longer periods.
During this period, because bond prices usually move inversely to yields, there was much greater price depreciation in long-maturity securities. In 2022, for example, Fidelity® Short Term Bond Fund returned -3.62%, versus -13.01% for the Bloomberg U.S. Aggregate Bond Index, the latter’s worst-ever calendar-year result. Meanwhile, the 10+ year component of the index returned -27.12%.
Looking at the past three years through June 30, 2025, the fund gained an average of 4.32% per year, versus 2.55% for the Aggregate index, a significant period of outperformance.
“Those were unique circumstances that tend to smooth out over time,” he says. “But even when we look at a longer period, short- and intermediate-term bond funds have offered attractive returns with lower return volatility, relative to core bond strategies.”
The portfolio management team recently wrote a white paper that studied this topic, noting that from 2012 through 2024, short- and intermediate-maturity investment-grade debt funds generated 88% of the return of longer-term core bonds, on average, with 52% less volatility.
This is because the comparatively shorter-term securities in which short and intermediate bond funds invest have shown lower sensitivity to interest rates and spreads over time, Galusza notes.
“So, for investors looking to add more fixed income to a stock-heavy portfolio, or to diversify within fixed income,” Galusza concludes, “short and intermediate bond funds have shown they can offer broadly similar returns to a core bond fund but with significantly lower risk.”
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Rob Galusza is a portfolio manager in the Fixed Income division at Fidelity Investments.
In this role, Mr. Galusza co-manages Fidelity and Fidelity Advisor Short-Term Bond Funds, Fidelity and Fidelity Advisor Limited Term Bond Funds, Fidelity Limited Term Bond ETF, Fidelity Intermediate Bond Fund, Fidelity and Fidelity Advisor Conservative Income Bond Funds, Fidelity Low Duration Bond ETF, Fidelity and Fidelity Advisor Sustainable Low Duration Bond Funds, and Fidelity Stable Value Portfolios, as well as short-duration portfolios for institutional clients.
Prior to assuming his portfolio management responsibilities in 1995, Mr. Galusza held various roles within Fidelity Management Trust Company, including portfolio manager and portfolio analyst.
Before joining Fidelity in 1987, Mr. Galusza was an international underwriter at Chubb and Son Inc. In this capacity, he performed risk analysis on international corporations. He has been in the insurance and financial industries since 1985.
Mr. Galusza earned his bachelor of science degree in finance, with concentrations in investments and marketing, from Babson College and his master of science degree in finance from the Carroll School of Management at Boston College.