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MetWest Team Managing Massive Inflows Well

The managers of Metropolitan West Total Return Bond continue to steer the fund in a predictable fashion even as assets have soared since Bill Gross’ departure from PIMCO.

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The following is our latest Fund Analyst Report for Metropolitan West Total Return Bond Fund (MWTIX) . Morningstar Premium Members have access to full analyst reports such as this for more than 1,000 of the largest and best mutual funds. Not a Premium Member? Gain full access to our analyst reports and advanced tools immediately when you try Morningstar Premium free for 14 days.

Metropolitan West Total Return Bond benefits from an experienced team of managers and analysts and a time-tested investment approach. This team, led by Tad Rivelle, Steve Kane, Laird Landmann, and Bryan Whalen, has a good deal of flexibility compared with the Bloomberg Barclays U.S. Aggregate Bond Index benchmark. The fund received the most inflows of any actively managed fund in the intermediate-bond Morningstar Category following Bill Gross' departure from PIMCO, with assets increasing by roughly 90% between late September 2014 and April 2015. The inflows have continued since then, albeit at a much slower pace, and the team has continued to steer the fund in a predictable fashion, dialing risk up or down based on its views on the credit cycle. Despite a small hike in fees, the expense ratio on the fund’s institutional shares is still reasonable. All told, the fund receives a Morningstar Analyst Rating of Gold.

This fund’s inflows were massive between late 2014 and through the spring of 2015, and this team managed them well, thanks in part to good security selection in its corporate sleeve and strength from its midteens nonagency mortgage stake. The fund's reduced stake in less-liquid nonagency mortgages (14% as of mid-2014 to 6% as of October 2016) raised the concern that the fund’s size has crowded it out of that niche. The team has argued that the reduction reflected its wariness of full valuations rather than capacity constraints, and the pace of the change was in keeping with the team’s dollar-cost-averaging approach. The team has been more cautious in other areas as well, including efforts to upgrade the quality of the fund’s stakes in corporates (23%, including 2% in high yield), asset-backed securities (6%), and commercial mortgage-backed securities (6%), as well as keeping duration one half year short of the index.

The fund’s more conservative profile has resulted in decent, though not stellar, returns compared with peer funds during the past few years, but over the long term, the team’s eye for value and well-timed moves into credit have paid off handsomely.

Karin Anderson does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.