Nominees for 2017 Fixed-Income Fund Manager of the Year
In addition to standout performance in 2017, these five candidates can be proud of their strong long-term records.
Following an impressive 2016, riskier bond sectors continued to outperform in 2017. Emerging-markets debt led the pack, with local-currency and hard-currency indexes up around 10% to 15%, but high-yield (up over 7%) and investment-grade corporate bonds (up over 6%) also did very well. In addition, the yield curve flattened, which meant longer-maturity bonds outperformed shorter-maturity bonds.
Here are this year's nominees for Fixed-Income Fund Manager of the Year. Their 2017 results are only part of what makes these managers special, however. The Morningstar Fund Manager of the Year awards have always strived to recognize both recent and long-term achievements. To qualify, managers' funds must have Morningstar Analyst Ratings of Gold or Silver. They must also have impressive absolute, relative, and risk-adjusted returns not only in 2017 but also over their tenures.
One finalist, a value-driven world-bond fund, benefited most from the year's rally in emerging-markets debt. Another has continued to benefit from a long-standing bet on nonagency mortgages, one of the most prescient trades in recent years. The remaining three are among the strongest offerings in the intermediate-term bond Morningstar Category. The winner will be announced on Wednesday.
David Hoffman, Stephen Smith, John McIntyre, and Anujeet Sareen
BrandywineGLOBAL Global Opportunities Bond (GOBSX)
2017 Return: 12.8%
2017 Morningstar Category Rank (Percentile): 3
The team here has long forged a singular path in global fixed-income markets, favoring bonds in countries that offer high real yields and currencies poised to benefit from supportive economic trends, without concern for the makeup of traditional bond benchmarks. The team's patient, valuation-driven approach means that it's willing to stick with positions when markets move against them in the short-run, and in 2017, that discipline paid off. The fund's 12.8% return for the year beat its stated Citi WGBI benchmark by more than 5 percentage points, helped by a healthy stake in the team's favored emerging-markets bonds and currencies (such as Mexico), the decision to downplay the U.S. dollar in favor of other developed-markets currencies such as the British pound, and timely adjustments to the fund's duration.
Daniel Ivascyn and Alfred Murata
PIMCO Income (PIMIX)
2017 Return: 8.6%
2017 Morningstar Category Rank (Percentile): 10
This fund operates without a fixed benchmark and is geared to deliver a consistent, high level of income without taking excessive risk. That tends to push the portfolio toward income-rich sectors in larger proportion than one might find in an investment-grade-focused core offering. But, importantly, it has managed to avoid serious trouble during periods of market stress. Overall, PIMCO delivered strong results across its generalist and specialist fund lineup this year, and managers Daniel Ivascyn and Alfred Murata were able to capitalize on the success of the firm's talented teams. Roughly a fourth of the fund's gains come from interest-rate positioning, according to PIMCO, with a similar ratio stemming from high-yield and emerging-markets debt. The jewel in this fund's crown, however, has been its successful exploitation of opportunity in the nonagency residential mortgage market since the 2008 financial crisis. The fund's allocation there--as well as its superior subsector and security selection--contributed nearly half of its returns in 2017.
Scott Mather, Mark Kiesel, and Mihir Worah
PIMCO Total Return (PTTRX)
2017 Return: 5.1%
2017 Morningstar Category Rank (Percentile): 10
Lead manager Scott Mather and comanagers Mark Kiesel and Mihir Worah were able to capitalize on the success of PIMCO's talented team across sectors and strategies. In a year when taking corporate credit risk gave many intermediate-term bond funds a leg up, this team managed to beat close to 90% of the competition and the Bloomberg Barclays U.S. Aggregate Bond Index even though caution dictated that it downplay corporate credit relative to peers and the benchmark. The team's U.S. interest-rate calls, including timely emphasis on U.S. duration and positioning for a flatter yield curve, paid off, as did the fund's continued allocation to the strong-performing nonagency mortgage sector. Importantly, the fund's corporate underweighting didn't prove too costly, thanks to the team's strong security selection, particularly in financials. Although this team has only managed the fund for three years, the portfolio managers have excellent long-term track records on other funds. They've proved that this fund, aided by a strong supporting cast, remains a formidable intermediate-term bond contender.
Michael Collins, Robert Tipp, Richard Piccirillo, and Gregory Peters
Prudential Total Return Bond (PDBZX)
2017 Return: 6.6%
2017 Morningstar Category Rank (Percentile): 2
PGIM arguably hasn't garnered as much attention among intermediaries and individual investors until recently, but its fixed-income group runs roughly $700 billion in assets. That includes roughly $80 billion devoted to strategies similar to this one, which is overseen by four senior investors, each with at least 23 years of industry experience. The group is run by CIO Mike Lillard, and his earlier role as head of risk management gives a window into the priorities of the team and this fund. This portfolio carries well-defined risk guidelines and benefits from the methodical, deep, and broad research across sectors and disciplines of roughly 125 portfolio managers, 100 analysts, and 50 quantitative and risk-management pros. So, while the firm itself is rooted in its history as a manager of insurance assets leaning heavily toward corporate credit, the fund has enjoyed success with a broader scope, both over the long term and in the past year. According to PGIM Fixed Income, security selection, sector allocation, and yield-curve and duration positioning were all significant contributors to its outperformance this year.
Ken Leech and Team
Western Asset Core Plus Bond (WACPX)
2017 Return: 7.1%
2017 Morningstar Category Rank (Percentile): 1
This fund ended 2017 in the best-performing percentile of its intermediate-term bond category. This performance was powered by a diversified set of contributors, including duration management, yield-curve positioning, overweightings in credit and structured products, as well as opportunistic forays into foreign bonds, including emerging markets. All of these resulted from the fund's process, which is common-sense and nimble on the macro front and well-researched on the security-selection front. The managers here won this award in 2014 and posted outstanding performance in each of the following three calendar years. In fact, one has to go back to 2008 to find the fund's last serious falter, and it was an experience that the Western Asset team learned from. Even with the financial crisis underperformance factored in, the fund's long-term returns are admirable.
Morningstar analysts Miriam Sjoblom, Eric Jacobson, and Maciej Kowara contributed to this article.
Brian Moriarty has a position in the following securities mentioned above: PTTRX. Find out about Morningstar’s editorial policies.