Increased Risk-Taking Reduces Pimco Total Return’s Rating

Uncertainty about how Pimco Total Return’s PTTRX increased appetite for risk-taking will work out brought on a Process Pillar downgrade that dropped the Morningstar Medalist Ratings of the fund’s cheaper share classes to Silver from Gold.

Lead manager Mohit Mittal, who took over the strategy after the late-2022 retirement of Scott Mather, will still follow Pimco’s time-tested multisector approach, but he aims to opportunistically incorporate more of the firm’s higher-conviction views against its benchmark than his predecessor did. The theory is that implementing some of the firm’s higher-conviction ideas within the fund’s diversified approach will increase its odds of meeting its goal of beating its bogy by 100 to 150 basis points per year.

The fund still has a host of advantages, including a strong management team and a history of successful turnarounds and comebacks from periods of fallow performance. Though new as its lead manager, Mittal has helped manage this strategy since 2019 and other versions of it since 2013. He also has impressive support, including firm CIO Dan Ivascyn, credit CIO Mark Kiesel, and seasoned global-bond manager Qi Wang. The strategy also still relies on the firm’s unique marriage of comprehensive top-down and bottom-up research. The firm has had success tweaking and improving its emerging-markets strategies recently, but it’s uncertain how the adjustments here will play out.

Key Morningstar Metrics for Pimco Total Return

• Morningstar Medalist Rating: Silver
• Process Pillar: Above Average
• People Pillar: High
• Parent Pillar: Above Average

Honing Its Edge

Fidelity Advisor Floating Rate High Income FFRTX earned a Process Pillar upgrade to High from Above Average, which boosted the Medalist Rating of its cheapest Z share class to Gold from Silver and two other share classes to Silver from Neutral.

Lead manager Eric Mollenhauer has honed the strategy’s competitive advantage in his more than a decade at the helm. The strategy has long leaned on Fidelity’s size and presence in the bank-loan market as well as the firm’s large high-yield research team. The firm’s scale and resources also often give it access to unique deals unavailable to smaller players. Over the years, however, Mollenhauer has been willing to layer in more opportunistic securities while still sticking to the higher-rated and more liquid, or easily tradable, end of the bank-loan market, which tends to have a lot of lower-rated and more illiquid, or infrequently traded, securities. He has honed the fund’s edge over rivals.

Mollenhauer and comanager Kevin Nielsen have experience covering the lodging and casino industries, which explains the fund’s overweightings in those areas relative to the Morningstar LSTA US Performing Loans Index.

Key Morningstar Metrics for Fidelity Advisor Floating Rate High Income

• Morningstar Medalist Rating: Silver
• Process Pillar: High
• People Pillar: High
• Parent Pillar: Above Average

Solid Decisions Boost Process Upgrade

An upgrade to JPMorgan Ultra-Short Municipal Income ETF’s JMST Process Pillar rating to Above Average from Average boosted its Medalist Rating to Silver from Bronze.

Comanager and longtime head of JPMorgan’s municipal-bond strategies Rick Taormina left a year ago, but seasoned comanagers Curtis White and Josh Brunner remain and still rely on solid security selection and relative value decisions to run the strategy. Indeed, a growing track record of solid decisions drove the Process Pillar upgrade. The duo tries to beat money market funds over a market cycle by keeping the strategy’s duration (a measure of interest-rate risk) less than one year. The fund is very diversified, featuring bonds from 20 states, 30 distinct issuers, and various municipal sectors. It also limits exposure to nongovernmental sectors, single issuers, and below-investment-grade bonds and keeps about 20% to 30% of assets in cash and other very short-term securities to ensure liquidity.

Key Morningstar Metrics for JPMorgan Ultra-Short Municipal Income ETF

• Morningstar Medalist Rating: Silver
• Process Pillar: Above Average
• People Pillar: Above Average
• Parent Pillar: Above Average