3 Intermediate Core-Plus Bond Funds to Help Manage Your Credit Risk

Income-seeking investors should consider increasing interest rate risk, or duration, in the bond portion of their portfolios while minimizing additional corporate credit risk.

It had been easy to benefit from the steep yields of US government bonds with short maturities and thus negligible interest rate or default risk. The Federal Reserve’s determination to combat postpandemic inflation kept the bank overnight lending rate between 5.25% and 5.50% for nearly 14 months, beginning in July 2023. But the Fed has been in cutting mode for more than a year now, and by the end of 2026, the market expects the overnight lending rate to drop at least 25 basis points further from its current 3.50% level. Many participants also believe yields of US government bonds with shorter maturities will become less attractive relative to their longer-dated counterparts.

Shifting some fixed-income portfolio assets from short- to intermediate-term bond funds makes sense, provided investors are cautious about taking on too much corporate credit risk. Not only do corporate bonds, especially high-yield issues with below-investment-grade ratings, move more in tandem with stocks than other parts of the bond market, but also the yield spreads for taking on corporate risk are among the thinnest they have been since the mid-1990s. The compensation for that risk is thus minimal, and widening spreads could hurt.

Yet, widened spreads could also present an opportunity for strategies currently light on corporate bonds but that can and do buy them, including those with junk ratings. Two of the three intermediate core-plus bond Morningstar Category funds detailed here fit that bill, while the third habitually avoids corporates in favor of mortgage-related and asset-backed exposure.

With its value-driven and disciplined approach, TCW MetWest Total Return Bond MWTRX has typically kept a below-median footprint in corporate bonds relative to its peers, but over the past decade, the strategy’s corporate bond weighting has oscillated six times between roughly 20% and 30%, largely in line with changing spreads. At 19.8%, the September 2025 portfolio was at the lower end of that range, 7.7 percentage points less than that of the Bloomberg US Aggregate Bond Index. Comanager Jerry Cudzil draws on his corporate credit background in helping to craft these exposures. The strategy, though, will buy lower-rated credits. Its current portfolio has 5.9% of its assets in CCC and below debt, where valuations based on historic spreads are more attractive compared with higher-rated bonds.

Pimco Total Return’s PTTRX corporate bond weighting has consistently ranked around the category’s bottom quartile since Mohit Mittal took over as lead manager in October 2022. Mittal has sought to incorporate high-conviction ideas from across the firm, such as currency-carry and swap-spread trades, to diversify the strategy’s sources of excess return without amplifying volatility. His caution on corporate credit extends to junk bonds, whose 1.18% weighting in September 2025 was in line with what has been typical thus far under Mittal. The fund also regularly uses credit default swaps on corporate issues and indexes to alter the portfolio’s sensitivity to credit spreads. With Pimco’s vast credit resources, the strategy is well-positioned to add credit exposure when spreads become attractive.

DoubleLine Total Return Bond DBLTX sits among a small subset in the intermediate core-plus bond category that focuses mostly on mortgages and structured credit and charts a clear course away from the Bloomberg US Aggregate Bond Index and corporate-heavy rivals. With a corporate bond weighting that was consistently around zero over the past decade through September 2025, its correlation with the S&P 500 during that period was one of the category’s lowest. It would be an effective way to diversify a portfolio away from stocks.

This article first appeared in the November 2025 issue of Morningstar FundInvestor. Download a complimentary copy of FundInvestor by visiting this website.