The teams of these 2 bond funds are no longer at the top

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Morningstar analysts kicked off in 2022, with a flurry of ratings activity in January.

Morningstar updated analyst ratings for 1,505 fund share classes, exchange-traded funds and separately managed accounts/mutual funds in the first month of the year. Of these, 1,147 retained their previous rating, 164 were reclassified, 31 were downgraded, 34 were added to coverage, and 129 were subject to review due to material changes, such as departures of officials.

Looking at stock classes and vehicles down to their underlying strategies, Morningstar released 309 analyst notes in January. Of these, two were new to coverage and the others had at least one investment vehicle that had previously been covered by a Morningstar analyst.

Below are some highlights of the upgrades, downgrades, and new strategies for hedging.

Updates

The robust management team in the Fidelity Advisor Freedom Target Date Series achieved a People Rating upgrade to High from Above Average, raising its Morningstar Analyst Rating to Silver, while some more expensive stock classes remain Bronze and Neutral. Andrew Dierdorf and Brett Sumsion co-manage this series and implement changes based on research from their extended team. The duo bring extensive asset allocation experience, while the support team is one of the largest in the industry, with over 60 professionals, including 26 research-focused members. The team is focused on providing a diverse and resilient glide path for investors furthest from retirement to those in retirement. Managers also have a plethora of attractive underlying funds to choose from. Within equities, they leverage strategies run by well-regarded managers like Will Danoff and Jed Weiss. Within bonds, veteran Ford O’Neil’s investment grade bond strategy has the most assets.

Improved manager decision-making during the American Funds Target Date Retirement Series earned it an overall upgrade from gold to silver for its cheaper stock classes, while its remaining stocks are between silver and neutral depending on fees. The series’ recently revamped multi-asset group has brought tangible and beneficial changes. Previously, its approach to portfolio construction lacked rigour. Yet in January 2020, American Funds’ parent company, Capital Group, created the Target Date Solutions Committee to oversee this series and improve its quantitative capabilities. This produced noticeable glide path changes in April 2021 after extensive research. Series leaders Michelle Black and Brad Vogt have increased the geographic flexibility of its equity pocket by paring down several region-specific strategies for more global, go-anywhere funds. Morningstar Medalists make up more than 90% of the series’ assets, a remarkable feat that speaks to the strength of the US funds strategy menu.

Downgrades

Harbor Bond’s (HABDX) the name and manager changes resulted in a People’s Pillar downgrade from Medium to High and an overall downgrade from Gold to Bronze for two share classes, and from Silver to Neutral for another. Harbor Bond will become Harbor Core Plus and Boston’s Income Research + Management (IR+M) sub-advisor will take over from Pimco, which has managed the fund since its inception in 1987 with the same strategy as Pimco Total Return (PTTRX). Harbor hopes to distinguish this fund from so-called core offerings. IR+M’s investment team is experienced, but smaller given the breadth of its investment universe. The process is rather simple. It avoids betting on interest rates and yield curves, uses no derivatives or emerging market debt, buys only dollar-denominated issues and takes no exposure to foreign currencies. Harbor will also reduce spending across all share classes.

TCW Emerging Markets Local Currency Income’s (TGWIX) People Pillar went from high to above average, bringing their overall rating to bronze from silver. Although the management team remains one of the most experienced groups, its size has not kept pace with some larger peers. Veteran managers Penny Foley, David Robbins and Alex Stanojevic lead the team which, while experienced, has had a few starts over the years and lacks the depth of some of its peers. The team’s process, which combines flexibility and prudence, as well as in-depth country analysis, has served the strategy well in various market conditions and over the long term.

New in coverage

MFS Mid Cap Value (MVCAX) debuted with a silver analyst rating for its lowest-priced share classes, while its most expensive share classes got bronze. Three managers lead this strategy and draw on a large pool of MFS analysts for assistance. Managers Brooks Taylor and Kevin Schmitz have been at the helm since November 2008, bringing stability and experience to the strategy. In June 2021, the team promoted Richard Offen to the management ranks. Like other MFS strategies, the managers focus on companies with sustainable business models, a track record of strong capital management and reasonable valuations. However, these managers allocate about a third of their portfolio to an opportunistic tranche, which allows them to broaden their investment universe. Backed by the strong resources of its MFS and a promising mix of quality and opportunistic stocks, it is a strong mid-value stock option.

Associate Director Chris Franz contributed to this article.

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