Do These Bond Managers’ 5-Year Tenures Make the Grade?

It’s been five years since some prominent bond funds changed managers. At five years, you get a pretty good picture of how managers work and their skill level.

And as it happens, the past five years have had quite a variety of markets. The economy slammed the brakes when covid-19 shut down the country, causing huge layoffs and deflation for certain items as demand for things like gas shut down. Then we had a big economic rebound, later a spike in inflation that spurred a rise in interest rates, and now an apparent soft landing as job growth and inflation have cooled and the Federal Reserve has started cutting rates.

Sonali Pier has been a comanager at Pimco High Yield PHDAX since 2019. However, the management picture has remained unsettled. In 2023, lead manager Andrew Jessop left and was replaced by David Forgash, and comanager Amit Agrawal was replaced by Jason Duko. Since Pier came on board, returns have been an unimpressive 3.2% annualized, lagging peers and the benchmark. The trailing one-year return through Sept. 30, 2024, which captures Forgash’s leadership, was 14%—about average for the Morningstar Category. Forgash came from Pimco’s leveraged-loan group, but this is his first foray into US high yield.

The fund has an Average People rating and a Morningstar Medalist Rating of Neutral as we still need more to go on. It was rated Bronze before Jessop’s departure. Management stability and improved returns would certainly help the case.

Wellington’s Brian Conroy joined Vanguard GNMA VFIJX in 2019 and took the helm in 2020, and it has been smooth sailing since. Under Conroy, the fund has maintained its focus on agency pass-throughs and avoided riskier derivatives. We rate the People Pillar at Average and Process at Above Average, and the fund earns a Silver rating overall. Although the fund’s 0.19% annualized five-year return through September is unexciting, it actually topped the benchmark and peers. The 2022 interest-rate spike pummeled mortgages, but the fund at least lost less than its competition.

Steve Rodosky has done a fine job since taking over Pimco Real Return PRTNX in 2019. He has applied an appealing mix of caution and aggression. He avoids big interest-rate calls but seeks to make smaller bets on things like yield-curve positioning and non-Treasury Inflation-Protected Securities. The fund’s 2.5% annualized five-year return through September edged peers. The People rating is Above Average and Process is High, but the A shares come in with just a Neutral rating because they are a tad pricey, and TIPS returns tend to be low.

We see promise in Rodney Rayburn’s work at T. Rowe Price High Yield PRHYX, though returns have been middling under his tenure. Specifically, the fund’s 3.95% annualized five-year return is just behind its peers. T. Rowe Price boasts a deep team of high-yield analysts, and the Above Average rating for People reflects our confidence in the team as well as Rayburn. The process combines issue selection with some top-down calls, and we rate it Above Average as well, giving the fund a Medalist Rating of Bronze.

Following losses in 2022, T. Rowe Price High Yield reopened to new investors, but net outflows have continued in 2024. I like that the firm is willing to close the fund to enable issue selection to add value, though it seems to be a ways away from closing again.

This article first appeared in the September 2024 issue of Morningstar FundInvestor. Download a complimentary copy of FundInvestor by visiting this website.