Morningstar has announced that the PIMCO Australian Bond fund has been the only fixed-interest strategy to earn the rating house’s highest possible analyst rating of gold, while another 21 funds were designated silver and further 21 funds have been recognised as bronze.
Morningstar said that falling Australian bond yields in 2018 allowed more-traditional Australian bond portfolios to surpass most other major asset classes, and the fixed-interest strategies fulfilled the portfolio insurance role.
At the same time, most flexible-bond vehicles were best deployed as a component rather than the entirety of a fixed-interest allocation, Morningstar said.
Two strategies, UBS Australian Bond and UBS Diversified Fixed Income, were upgraded to silver and bronze and Morningstar initiated the coverage of the following strategies:
- Legg Mason Western Asset Global Bond at bronze;
- Vanguard Global Aggregate Bond Index at bronze;
- Vanguard Global Aggregate Bond ETF at bronze;
- Vanguard Australian Government Bond Index at neutral; and
- CC JCB Active Bond at neutral.
The firm also said that credit spreads approached pre-financial crisis levels and active managers responded to that by moderating their sensitivity to this sector.
“Managers have several options to adjust their credit exposure, and no single metric can capture this shift easily,” Morningstar said in a press release.
“Over the course of 2018, bond managers trimmed allocations, moved into less cyclical sectors, favoured higher-grade paper, scaled the capital structure, shifted into shorter-dated instruments, and/or hedged credit allocations more aggressively.”