Morningstar's evaluation of this security's process aims to determine the likelihood that it will outperform its Morningstar Category benchmark on a risk-adjusted basis over the long term.
The primary contributor to the rating is that this fund tracks an index. Historical data, such as Morningstar's Active/Passive Barometer, finds that passively managed funds have generally outperformed their active counterparts, especially over longer time horizons.
The investment strategy as stated in the fund's prospectus is:
The investment seeks results that closely correspond, before fees and expenses, to the performance of the ICE U.S. Treasury 1-3 Year Bond Index. The fund seeks investment results that closely correspond, before fees and expenses, to the performance of the underlying index, which measures the performance of U.S. dollar-denominated, and fixed rate securities with minimum term to maturity greater than one year and less than or equal to three 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 4.7%, higher than its average peer's 3.9%. Plus, its 30-day SEC yield (a standardized, point-in-time estimate of the fund’s future income return) sits at 4.0%. While a higher yield may deliver more income, it also tends to indicate higher credit risk. But that isn't always the case. Over the past 12 months, the average yield of the fund has been higher than the average yield of its Morningstar Category peers. The portfolio's average surveyed credit quality is on par with peers, with both the fund and the average being rated AA. 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 1.9-year duration, is expected to gain 1.9% of its net asset value if interest rates drop by 1 percentage point, and vice versa.