Our list of rated funds continues to grow.
We continue to add funds to our Morningstar Analyst Ratings for Funds list and to revisit existing ratings on funds. Below, we look at one reaffirmed rating and a few new ones.
Metropolitan West Total Return Bond MWTRX
Reaffirmed Rating: Gold
We initially rated this intermediate-term bond fund Gold in November 2011. Its time-tested management team has favored a mix of nongovernment mortgage-backed securities and corporate debt since 2008's financial crisis. Its bargain-hunting style can lead to periodic short-term losses (such as its 7.6% loss between February and October 2008). Yet discipline and rigorous research resources have rewarded investors willing to weather those rough patches, and the fund's long-term risk-adjusted performance (by measures such as the Sharpe ratio and Morningstar Risk-Adjusted Returns) outpace the vast majority of its peers.
Although the fund's Gold rating stems from its proven management, below-average expenses, and stellar risk-adjusted performance, its Neutral parent pillar score bears watching. TCW is being purchased by private equity funds managed by the Carlyle Group (with the deal set to close in early 2013). While key portfolio managers--including this fund's--have signed new five-year contracts, disruptions to the firm's culture, investment personnel departures, or cost-cutting efforts that adversely affect its research operation would cause us to lower our rating.
PIMCO Inflation Response Multi Asset PIRMX
New Rating: Silver
Although this conservative-allocation fund is just over a year old, its roots run deeper. Manager Mihir Worah rotates assets between Treasury Inflation-Protected Securities, commodities, emerging-markets currencies, REITs, and gold in an effort to outpace inflation. Worah and his team have generated attractive long-term results at PIMCO Real Return PRRIX and PIMCO Commodity Real Return PCRIX, and so has the firm's emerging markets team behind PIMCO Emerging Markets Currency PLMIX. PIMCO's macroeconomic views and Worah's assessment of valuations will drive the fund's asset allocation. He also allocates roughly 0.5% of assets per year to tail-risk hedges (mainly put options on stock markets) to shield the portfolio from losses greater than 15% in any single year.
The fund's tactical approach and tail-risk hedging have yet to be put to the test, but its flexibility should come in handy in light of periodic sharp rallies in commodities as well as today's negative real yields on TIPS. PIMCO is one of the few firms equipped to manage the fund's strategy, and unlike many PIMCO funds, this one's expenses across share classes range from average to below average.
Weitz Short-Intermediate Income WEFIX
New Rating: Bronze
This short-term bond fund can stretch its legs more than many of its peers. Long-time skipper Tom Carney (at the helm since January 1996) invests in a mix of government, corporate, and securitized fare but has the leeway to park up to 15% of assets in a mix of high-yield, preferred stock, and dividend-paying common stock. Rather than hew to any benchmark, he tends to buy what he believes looks cheap and won't permanently lose capital.
The resulting portfolio often takes on a notch or two more credit risk than rivals (witness its 9.1% high-yield stake as of Sept. 30, 2012), which fuels its above-average volatility. Yet Carney will bulk up on cash when opportunities are scarce and has done an excellent job keeping the fund out of trouble. The fund's Bronze rating reflects confidence in Carney's style, his long-term track record, and the fund's reasonable 0.61% expense ratio.
T. Rowe Price Summit Municipal Intermediate PRSMX
New Rating: Silver
Municipal bond funds are back in the spotlight on fears of higher taxes down the road, and this one takes a more temperate approach than many. Its duration (a measure of interest rate sensitivity) tends to run shorter than its average municipal national intermediate peer. While manager Charlie Hill is unafraid to scoop up mid-quality bonds with a shade more credit risk, he's no dumpster diver and won't load up on lower-rated fare for the sake of yield.
Due to those traits, the fund won't turn any heads with its 1.2% SEC yield as of Nov. 9, 2012 (1.8% on a tax equivalent basis for investors in the 33% income tax bracket). Yet Hill's moderate approach has generated consistently strong total returns, outpacing two thirds of its rivals with less volatility than four fifths of the category over the trailing decade. Its below-average 0.50% expense ratio and T. Rowe Price's stewardship strengthens its case.