Defined contribution (DC) plans form the backbone of retirement security for millions of Americans. And while stocks often steal the spotlight for their growth potential, bonds play a crucial role in managing risk, providing diversification, and delivering reliable income—especially as participants approach retirement.
Fixed income also stands out as a space where skilled managers can add real value, giving plan sponsors a powerful tool for potentially enhancing retirement outcomes.
With more than $145 trillion in global assets, and a growing relevance for today’s aging workforce, the fixed income market is larger and more sophisticated than ever.1 Improvements in credit quality, increased liquidity, and reduced trading costs have made active management more accessible and cost-efficient.
Compared with equity markets, fixed income markets tend to be deeper, more complex, and less efficient. By navigating the complexities and inefficiencies, a skilled manager can capitalize on opportunities created by changing interest rate and credit conditions to outperform benchmarks.
In fact, active bond funds have regularly outpaced their benchmarks over the past 20 years while maintaining risk profiles similar to the broad bond market. This track record stands in stark contrast to that of active equity managers, who have generally underperformed their benchmarks during the same period.2
Vanguard active fixed income
With more than $2.5 trillion in fixed income assets, including more than $1 trillion in active fixed income,3 Vanguard employs a global team of 200-plus experts covering various fixed income sectors to ensure a diversified and scalable approach. With our decades of experience and economies of scale, we strive to deliver consistent results with competitive fees, making active fixed income a valuable option for DC plans.
Consider this: 100% of Vanguard active fixed income funds are in the lowest-cost decile of their Morningstar category.4 That cost advantage has helped more than 90% of Vanguard active fixed income funds outperform their Lipper peer-group averages over the past 10 years.5
Read the full commentary to learn more about the benefits of and considerations for active fixed income.
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Sources:
1 2025 Capital Markets Fact Book. SIFMA, July 2025.
2 Vanguard calculations, based on data from Morningstar, determining percentage of active fixed income funds and active equity funds with annualized total returns in excess of their primary prospectus benchmark over rolling 3-year horizons for the 20-year period beginning January 1, 2005, and ending December 31, 2024. A fund's prospectus benchmark may not fully reflect the fund's current investment strategy or risk profile and may be selected for reasons that differ from the fund's actual objectives.
3 Vanguard data as of December 31, 2024.
4 All competitor fund data is sourced from Morningstar Direct as of November 2024. The combination of Morningstar category, investment type, and management style define Vanguard's category. Lowest-decile expense ratios are calculated excluding Vanguard funds. Vanguard's updated expense ratios (effective February 1, 2025) were compared with the lowest-decile expense ratios in each category. Summing all active fixed income funds that were less than or equal to the lowest-decile expense ratio and dividing by total active fixed income funds resulted in 100% of funds in the lowest-cost decile.
5 For the 10-year period ended June 30, 2025, 44 of 48 Vanguard active bond funds outperformed their peer group averages; results will vary for other time periods. Only funds with a 10-year history, respectively, were included in the comparison (source: LSEG Lipper). Note that the competitive performance data shown represent past performance, which is not a guarantee of future results, and that all investments are subject to risk. For the most recent performance, visit our website at vanguard.com/performance.
Notes:
- For more information about Vanguard funds, visit vanguard.com to obtain a prospectus or, if available, a summary prospectus. Investment objectives, risks, charges, expenses, and other important information are contained in the prospectus; read and consider it carefully before investing.
- Past performance is no guarantee of future results.
- All investing is subject to risk, including the possible loss of the money you invest.
- Diversification does not ensure a profit or protect against a loss. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income.