Should Investors Consider This Upgraded Bond Fund in 2023?

Metropolitan West Total Return Bond’s MWTRX impressive group of investors executes a time-tested investment approach. With the announcement that Katie Koch would take over as CEO in early 2023, there is clarity around the leadership of the firm and this strategy. As a result, all share classes now earn a Morningstar Analyst Rating of Gold.

The strategy is managed by Laird Landmann, Steve Kane, and Bryan Whalen, a veteran team that will benefit from the stabilizing appointment of Koch as CEO. Landmann and Kane have worked together since the early 1990s, with stints at Hotchkis & Wiley and Pimco before founding MetWest, alongside former CIO Tad Rivelle, in 1996. Whalen joined the firm in 2004 and became a generalist in 2013; he was named co-CIO alongside Kane when Rivelle’s retirement was announced in late 2021.

Meanwhile, the supporting cadre of specialists, analysts, and traders remains among the strongest in the industry, and the firm executes a disciplined valuation framework that often leads managers to cut risk as market cycles age and add risk during periods of dislocated prices.

Indeed, the strategy’s positioning tends to shift dramatically early in a credit cycle as the managers take advantage of rock-bottom valuations in the corporate and securitized sectors. The managers then gradually dial down the fund’s risk in the mid- to later stages of the cycle. This approach led to mediocre performance in years like 2016, 2017, and 2019, when risk-taking was thoroughly rewarded. But investors reaped the benefits during the coronavirus selloff in early 2020, when the strategy’s I shares only lost 2.8% and held up better than over 80% of distinct peers.

This approach occasionally leads to elevated interest-rate risk compared with many peers, which is the cause of the strategy’s relative underperformance in 2022. But the managers haven’t been idle, either, taking advantage of periodic corporate credit volatility while also increasing exposure to historically cheap agency mortgages. As a result, while rising rates will continue to apply pressure, the strategy is well-positioned for a variety of market environments.

Key Proprietary Morningstar Metrics for Metropolitan West Total Return Bond

Morningstar Analyst Rating: Gold

Process Pillar: High

People Pillar: High

Parent Pillar: Average

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