Updated with correction
Mortgage-backed securities made a strong showing, but high-yield strategies continued to dominate the top fixed-income strategies for the year ended June 30, according to Morningstar Inc.'s separate account/collective investment trust database.
While Morningstar does not have a dedicated mortgage-backed security category, strategies with MBS in the name had a better median return than overall fixed-income for the quarter, according to Adam Baranowski, a data analyst with Morningstar Inc., Chicago. Those strategies had a median return for the quarter of 3.27% and a median one-year gross return of 13.26%.
The median overall bond strategy in the separate account universe, meanwhile, returned 11.38% for the year ended June 30. The Barclays Capital Government/Credit index returned 9.65% during the same period.
Brookfield Investment Management Inc.'s CMBS Composite strategy led the overall fixed-income strategy with a one-year gross return of 81.36% as of June 30. For the previous quarter, the strategy ranked sixth overall with a one-year gross return of 69.79% as of March 31.
While Morningstar doesn't' have a dedicated CMBS category, “we have some qualitative data, investment philosophies, to try to gain a sense, and we did find something of some interest because it's the same with the Brookfield that popped up at No. 1 on the list and the MetWest Strategic Income (which ranked eighth),“ Mr. Baranowski said. “They like to call themselves "strategic' strategies. What it boils down to is they're actively managed funds. They're searching for value in the market. They're not tethered to a benchmark. They basically have free rein to choose what they think is going to work.”
Michelle Russell-Dowe, New York-based managing director and head of structured products for Brookfield, responded in an e-mail that the strategy “was driven by our recognition that out-of-favor CMBS securities were extremely undervalued and the subsequent return of leverage and a small amount of issuance in the first half of 2010 has resulted in significant yield compression.”
Metropolitan West Asset Management LLC's AM Strategic Income strategy had a one-year gross return of 37.73%.
TCW Group Inc. ranked ninth in one-year gross returns with its Strategic MBS strategy at 37.3%. It led all fixed-income strategies in five-year gross returns for the fifth quarter in a row at 16.13%.
“These three are really actively managed so they're finding value when other people aren't really. At least with the TCW strategy, they didn't have too hard of a time. They emerged from the financial crisis somewhat unscathed compared with other strategies. They've managed to sustain that,” Mr. Baranowski said.
Despite the strong showing of CMBS strategies, high-yield strategies made up seven of the top 10 performers for the year, largely on the strength of very strong third quarter in 2009. The median composite high-yield strategy returned 22.93% for the year ended June 30, while the Credit Suisse High Yield index returned 26.92% for the same period.