Morningstar’s Director of Manager Research Shares His Focus

Morningstar’s Director of Manager Research Shares His Focus

Focusing on high yield funds, Core and Core Plus Bond offerings, as well as active ETFs, the 76-member team that makes up the manager research and ratings team looks for funds that fulfill at least one of the following qualifications: demand from clients, requests, and whether it adds the most value to the team, reports an article in CityWire. Says team lead Russel Kinnel, “I think the underlying…is where can we add value the most?”

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Demand for income strategies has been very high over the last few years, either from equities, bonds, or a mix of the two. And while many fixed income funds declined last year during the bond selloff, they are starting to show appealing enough yields again to tempt investors to return. In 2022, investors drained $216 billion from taxable bonds and $119 billion from municipal bonds and ETFs; so far this year, taxable and municipal bonds have seen inflows of $59 billion and $8.3 billion, respectively. Usually, Kinnel warns against being taken in by bond funds that try to lure investors with “gimmicks” such as dividend capture and managers scooping up low-quality credit. But the current environment is unique in that buying based on yield could work out in investors’ favor. “If, instead of buying based on the fact that they lost money, you’re looking at, “well, if this fund has a 7% yield, and it’s run well, if they could just avoid losing on principal, I’m gonna get a nice return,’’’ Kinnel told CityWire. And investors still seem to be cautious about balanced allocations, given how badly 60/40 portfolios did in 2022.

Kinnel’s team is also giving more overage to ETFs, a space that Kinnel believes will keep growing, though they’re lending more credence to passive ETFs than active at the moment. While big names like T. Rowe Price and Fidelity will draw in many buyers for their ETFs, there is still room for others to come in strong as well. Says Kinnel, “I think it’s gonna be a very interesting dynamic area.”

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