Morningstar's evaluation of this security's process aims to determine the likelihood that it will outperform its Morningstar Category index on a risk-adjusted basis over the long term.
The leading factor in the rating is its parent firm's superior long-term risk-adjusted performance, as shown by the firm's average 10-year Morningstar Rating of 3.3 stars. This fund tracks an index, which also increases its process rating. Historical data, such as Morningstar's Active/Passive Barometer, shows that passively managed funds have generally outperformed their active counterparts, especially over longer time horizons. However, the process is limited by the experience of the management team, which averages four years at this fund.
The investment strategy as stated in the fund's prospectus is:
The investment seeks investment results that closely correspond, before fees and expenses, and to the performance of the Bloomberg Short-Term U.S. Aggregate Bond Index. The index measures the performance of U.S. dollar denominated investment grade taxable bonds with remaining effective maturities between one and five years. The fund will invest at least 80% of its assets in securities included in the underlying index.
This strategy's 12-month yield is 3.5%, lower than its average peers' 4.0%. Plus, its 30-day SEC yield (a standardized, point-in-time estimate of the fund’s future income return) sits at 4.0%. Typically, a lower yield comes with the benefit of less credit risk. The portfolio holds assets with a higher average surveyed credit quality of AA, compared with the typical peers' A, and it holds no non-investment-grade assets, despite the average peers' 2%. Lower-credit-risk strategies are often able to navigate bear markets more effectively. In terms of long-term interest-rate risk, this strategy is on par with peers. The longer a strategy's duration, the more sensitive it is to shifts in interest rates. This fund, with a 2.7-year duration, is expected to gain 2.7% of its net asset value if interest rates drop by 1 percentage point, and vice versa.