2 Newly Rated--and Exceptional--Funds

Today we’re looking at two funds that Morningstar’s analysts have brought under coverage during the past few months.

Baird Ultra Short Bond BUBIX, a newer addition to Baird’s taxable fixed-income franchise, sports the same highly competent team and stellar investment process that has bolstered other funds in the family. It earns a Morningstar Analyst Rating of Gold on its cheaper share class and Silver on its more expensive option.

Lead manager and Baird CIO Mary Ellen Stanek heads a well-tenured portfolio management team. Although not as sizable as some of the firm’s largest competitors, the group is deeply collaborative and sticks to investments it can research thoroughly and confidently.

Rather than chase for yield by loading up on riskier fare, the team leans on sensible security selection and sector rotation, supported by low fees, in order to outperform its ultrashort bond Morningstar Category competitors. The managers keep the strategy’s duration neutral to that of the Bloomberg Barclays Short-Term U.S. Government/Corporate Index and avoid leverage, derivatives, and concentrated macro trades. While the team focuses on corporate, securitized, and occasionally municipal credit in order to outperform its U.S. Treasury-heavy index, it balances this risk with judicious credit selection and diversification, emphasizing large, liquid names and keeping position overweightings within 75 basis points of their benchmark size. Low fees preclude the need for outsize risk-taking.

Alger Mid Cap Focus AFOZX builds upon manager Amy Zhang’s strengths as a small-company investor and earns a Morningstar Analyst Rating of Silver across all share classes.

This fund, which launched in June 2019, is a natural extension of Zhang’s work at Alger Small Cap Focus AGOZX, which is closed to most new investors. Both strategies use an intriguing approach to company size based on operating revenues rather than market cap, which helps Zhang focus on companies generating cash with viable products or services. From there, she looks for growing firms with healthy balance sheets, durable business models, and promising growth potential. To keep the strategy focused, Zhang builds a portfolio of about 50 holdings.

This short-lived mutual fund has been a winner so far, excelling in both rising and falling markets. Capacity, both for Zhang and the fund, bears watching. This fund has started to gather assets quickly.

Analyst Gabriel Denis and associate director Tony Thomas provided the research behind this segment.