MetWest Total Return Bond Fund Commentary – Q2 2021
Thesis
MWTIX (currently yielding 1.01%) is an actively managed fund that provides a sector-based strategy while still maintaining fundamental research driven through issue selection. When compared to the benchmark (Barclays U.S. AGG), the holdings have similar duration and exposure, yet selection is focused around areas where other managers are not looking. Through sector rotation and active weighting, we expect MWTIX to generate alpha over time.
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Overview
In the second quarter of 2021, MWTIX was roughly in line with the benchmark (Barclays U.S. AGG). The fund’s decision to shorten duration compared to the index modestly weighed on returns in the second quarter. Additionally, an underweight to corporate credit and overweight to residential agency MBS detracted from performance. However, strong issue selection within corporate credit helped offset some of the drag, specifically in non-cyclicals and communications. A small allocation to high yield debt and non-agency MBS contributed to returns. ABS and CMBS has little to no impact on overall performance.
Q2 2021 Summary
- MWTIX returned 1.80%, while the U.S. AGG returned 1.83%
- Quarter-end effective duration for MWTIX was 6.04 and 6.58 for the U.S. AGG
- Strategy has returned to a more defensive and liquid one due to continued risks and uncertainty around COVID
- Credit: moving to higher quality products, reducing tight commodity-exposed names/sectors, and swapping into shorter maturities
Outlook
- We continue to hold this fund and believe in our thesis due to the fund’s defensive approach and minimal exposure to more vulnerable issuers and industries
- Focus remains on sectors that offer stability and wider spreads
- Securitized – agency MBS TBAs, legacy non-agency MBS, AAA-rated SASB (CMBS space)
- Opportunities in AA- and A-rated SASB with good LTV (loan-to-value) ratios are becoming attractive
- CLOs (attractive yields) and EM debt (cheaper entry point)
- MWTIX has positioned itself to take advantage of relatively attractive prices during times of high volatility to generate strong returns
[Category Mutual Fund Commentary]
Micah Weinstein
Research Analyst
Direct: 617.226.0032
Fax: 617.523.8118
Crestwood Advisors
One Liberty Square
Suite 500
Boston, MA 02109