Morningstar - Fall 2019 - 21

Performance in Market Shocks

Intermediate Core Bond
Intermediate Core-Plus Bond

Total Return
2.5%

Performance in Market Shocks

Preferred Securities and Income OPRAX in
February 2018 as its sole manager after 10 years
as an analyst at Oppenheimer, left the firm
on June 19. That fund has roughly just $20 million
in assets and will now be run by Chuck Burge,
who is part of Invesco's taxable-investment fixedincome team.
Ron Sloan, who had resurrected flagship Invesco
Charter CHTRX (and other funds that
previously merged into it) through the early to
mid-2000s, left the firm after a more recent
stretch of particularly poor performance. Sloan had
spent more than 40 years in the industry and
more than 20 at Invesco; he was one member of
his small team in San Francisco who didn't
relocate to Atlanta several years ago, so it's
probably safe to call this a retirement.
Mani Govil of Oppenheimer's Main Street
franchise will take the lead portfolio manager role
at Invesco Charter. Govil has a stable
team and strong process on Invesco Oppenheimer
Main Street MSIGX, but performance has
been mixed over the longer term. The fund has
a Morningstar Analyst Rating of Bronze
and $9.6 billion in assets. With Invesco Charter,
Govil adds $3.3 billion in assets. Both are
large-blend funds.
Like Govil, Invesco's Meggan Walsh now has
a bigger footprint. In addition to being
the lead manager on Invesco Diversified Dividend
LCEAX (rated Silver) and Invesco Dividend
Income FSTUX (Bronze), she's also taking
over Invesco Oppenheimer Equity Income OAEIX
(Neutral) and Invesco Oppenheimer Dividend
Opportunity OSVAX. Together they'll add
more than $3 billion in assets under management.
Invesco Diversified Dividend and Invesco
Dividend Income today total more than $20 billion.
Walsh has proved to be a bright spot in
Invesco's investment house, producing strong
risk-adjusted results with using a totalreturn approach to investing in dividend-paying
stocks and dividend growers.
The combined shop's fixed-income offerings have
also seen their share of change. Of note
is the eventual departure of Krishna Memani, who
had been Oppenheimer's CIO and fixed-income

Intermediate Core Bond
Intermediate Core-Plus Bond

TRE NDS

Credit Distinguishes Core Bond Categories

-5.0

Q4 2018-Credit Markets Collapse
2015-16
2016 Fed
2013 Taper
Intermediate Core
Bond HY Rate Rises
Commodity/
Tantrum
Sell-Oﬀ Bond
Intermediate Core-Plus
Total Return

3%

Q4 2018-Credit Markets Collapse

A key difference between the two is credit profile.
Intermediate core bond funds have a clear
bias toward investment-grade debt. As of May,
their median stake in AAA rated debt was
62%, while the median for core-plus bond funds
stood a bit below 50%. Conversely, the median
allocation to below-investment-grade debt
was close to 0% for core bond funds, but more
than 8% for their core-plus counterparts.
Core-plus funds tend to perform worse during
periods of credit stress, but the landscape
shifts when interest rates rise or investors expect
tighter monetary policy. The chart looks at
three different market shocks: the so-called taper
tantrum of May through August 2013-when
both credit and rate-sensitive markets fell
sharply after Chairman Ben Bernanke signaled
that the Fed would be begin to "taper" off its
quantitative easing policies; the commodity and
high-yield market sell-offs that lasted from
June 2015 through February 2016; and the period
of Fed rate increases from August 2016 through
December 2016.
Performance in Market Shocks

Intermediate Core Bond
Intermediate Core-Plus Bond

Total Return
3%0

10
20
0
% Non-Investment-Grade Assets

30

-3
0

Source: Morningstar Direct.

-3
10 of 2019, the
20tables turned.
30
0 the first quarter
In
Q4 2019-Credit Comes Back
% Non-Investment-Grade
Credit
whipsawed back, asAssets
the Fed signaled it
Intermediate Core Bond
would
hold off raising
interest
Intermediate
Core-Plus
Bond rates. Total Return
6%

Q4 2019-Credit Comes Back

Intermediate Core Bond
Intermediate Core-Plus Bond

Total Return
6%3

10
20
0
% Non-Investment-Grade Assets

30

10
20
0
% Non-Investment-Grade Assets

30

0
3

0

Source: Morningstar Direct.

Total Return
2.5%
0
-2.5
-5.0

2013 Taper
Tantrum

2.5%
-2.5

In the fourth quarter of 2018, credit markets -5.00
2015-16
2016 Fed would
2013 Taper amid fears
collapsed
that Fed tightening
Commodity/HY Rate Rises
Tantrum
send the U.S. economy
Sell-Oﬀ into a recession.
-2.5

In May, Morningstar split the intermediate-term
bond Morningstar Category-which was
the largest fund category by assets-into two
new categories: intermediate core bond and
intermediate core-plus bond. As the "core"
element of these new category names suggests,
these funds often serve as the foundation for
investors' fixed-income portfolios. But core-plus
bond funds have more-flexible mandates.

Intermediate Core Bond
Intermediate Core-Plus Bond

0
Total Return

2015-16
2016 Fed
Commodity/HY Rate Rises
Sell-Oﬀ

In both quarters, intermediate core-plus bond
funds showed a wider variation in performance.
That's a reflection of the broader range of
strategies in the category.
Tom Lauricella is an editorial director with Morningstar.
Gabrielle DiBenedetto is a data journalist with Morningstar.

Source: Morningstar Direct.

Q4 2018-Credit Markets Collapse
MorningstarCore
June/July
Intermediate
Bond 2018
Intermediate Core-Plus Bond

Utilities Have Lowest Share of 4- and 5-Star Ratings
21

Total Return

Sector

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Morningstar - Fall 2019

Table of Contents for the Digital Edition of Morningstar - Fall 2019
