Morningstar's evaluation of this security's process aims to determine the likelihood that it will outperform its Morningstar Category benchmark on a risk-adjusted basis over the long term.
The main contributor to the rating is that this fund tracks an index. Historical data, such as Morningstar's Active/Passive Barometer, finds that passively managed funds have generally outperformed their active counterparts, especially over longer time horizons. The parent firm's five-year risk-adjusted success ratio of 59% also strengthens the process. The measure indicates the percentage of a firm's funds that survived and outperformed their respective category's median Morningstar Risk-Adjusted Return for the period. Their commendable success ratio suggests that the firm does well for investors and that this fund may benefit from that. The firm's five-year retention rate of 84% contributes to the process as well.
The investment strategy as stated in the fund's prospectus is:
The investment seeks investment results that closely correspond, before fees and expenses, and to the performance of the Bloomberg Short-Term U.S. Aggregate Bond Index. The index measures the performance of U.S. dollar denominated investment grade taxable bonds with remaining effective maturities between one and five years. The fund will invest at least 80% of its assets in securities included in the underlying index.
This strategy's 12-month yield is 2.7%, lower than its average peers' 3.5%. Plus, its 30-day SEC yield (a measure similar to yield-to-maturity) sits at 5.0%. Typically, a lower yield comes with the benefit of less credit risk. The portfolio holds assets with a higher average surveyed credit quality of AA, compared with the typical peers' A, and it holds no non-investment-grade assets, despite the average peers' 2%. Strategies with less credit risk may help to provide a reliable ballast during periods of market stress. In terms of long-term interest-rate risk, this strategy is on par with peers. The longer a strategy's duration, the more sensitive it is to shifts in interest rates. This fund, with a 2.6-year duration, is expected to gain 2.6% of its net asset value if interest rates drop by 1 percentage point, and vice versa.