Metropolitan West Corporate Bond Has a Bright Future

When a new mutual fund gets off to a hot start, it can be tempting to buy in. But investing in a fund with a short track record is a dicey proposition. You may not know much about the managers. And without historical return data, you may be getting only part of the picture when it comes to how the fund will perform over different stages of the market cycle.

Metropolitan West Corporate Bond (MWCSX) has gotten off to a very hot start: Since the fund’s mid-2018 inception, it has returned an annualized 13.0%, which is 2.6 percentage points ahead of the benchmark for corporate bonds and better than any other fund in its category. But familiar faces run the show. Comanager Jerry Cudzil shares responsibilities with Tad Rivelle and Bryan Whalen, who also comanage Metropolitan West Total Return (MWTRX), a member of the Kiplinger 25 (the list of our favorite no-load mutual funds) that boasts a sterling long-term track record. And in Metropolitan West Corporate Bond’s short history, the fund has seen both up and down markets. Given the extreme volatility in the bond market earlier this year, “we basically experienced a full cycle in a quarter,” Cudzil says.

The market chaos has forced the fund, which invests predominantly in investment-grade debt, to be more nimble than usual. As yields on corporate bonds climbed from late February to late March, the managers positioned the fund more aggressively, adding to corporate debt on the lower-quality end of investment grade. The difference between corporate and Treasury yields has since shrunk, and the portfolio has once again grown more conservative.

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The fund seeks to invest in debt issued by firms with easy-to-understand cash flows and plenty of assets on hand to cover liabilities, as well as IOUs that trade cheaply compared with similar bonds. Lately, the managers have found value in bonds issued by health care, cable media, banking and industrial firms, says Cudzil. They have avoided debt from industrial-commodities companies and retailers.

The fund recently yielded 5.6%, compared with a 2.1% yield for the Bloomberg Barclays U.S. Corporate Bond index and a 0.7% yield for the 10-year Treasury.