Amid a sea of bond funds, Hartford Total Return Bond ETF seeks to stand out by not only focusing on high quality but by looking for the best ideas across all different parts of the fixed income market, according to its portfolio manager, Campe Goodman. Trading under ticker HTRB, the actively managed exchange-traded fund has a 30-day SEC yield of 4.92% and adjusted expense ratio of 0.29%, according to Morningstar . “What you’ll see as really distinguishing us and, we hope, making our returns sustainable and reproducible long term really is our ability to exploit a lot of different opportunities and to rotate across different parts of the market,” said Goodman, a fixed income portfolio manager at Wellington, a sub-advisor on the fund. “There are just so many different pockets of value. There’s so many different areas to explore.” HTRB saw a total return last year of 7.15%, and ranked in the 23rd percentile among its peers, according to Morningstar. This year, it is down about 1% so far and is in the 38th percentile. It is beating its benchmark, the Bloomberg U.S. Aggregate Bond Index , which is down about 2% year to date. The portfolio has 51% of its assets in mortgage-backed securities and 25% in investment-grade credit, according to the fund’s website. Compared to many of its peers in the intermediate core plus bond Morningstar category, Hartford Total Return Bond ETF leans a bit more on securitized markets rather than investment-grade corporate debt, according to Morningstar. Goodman is one of four portfolio managers on the ETF, all of whom bring different perspectives. The managers not only work closely together, they take advantage of the resources across Wellington, Goodman said. They have daily meetings with various teams and a monthly meeting with a group of specialists, such as those in high yield or emerging markets. “I have the ability to get … a couple of the best people in the business from each of these different areas into a room and really hash out relative value,” he said. “That’s very, very powerful.” Morningstar senior fixed income analyst Mike Mulach, who has a silver rating on HTRB, said he’s grown “increasingly confident” in Wellington’s fixed income platform. “We like this ETF for its solid team and well-constructed approach at a reasonable cost,” he said. Finding opportunities Right now, one of the areas Goodman sees value in is agency mortgage-backed securities. Spreads are currently wide by historical standards amid continued interest rate volatility, he noted. “We are seeing an enormous amount of volatility, but actually, if we don’t see a big trend in rates, then that tends to be very good for the mortgage sector,” he said. Goodman also likes structured finance right now, such as collateralized loan obligations, commercial mortgage-backed securities and nonagency residential mortgage-backed securities. In addition, subprime auto asset-backed securities look very good to him. While it is harder to find value in the below investment-grade side of the market, there are some attractive opportunities, Goodman said. Within emerging markets, he likes Eastern Europe. There is also good value to be found in the upper end of the high-yield segment, with BB-rated credit, he added. “They have an enormous amount of equity value, essentially, relative to their debt structure,” Goodman said. Bonds that are rated BBB- or higher at Standard & Poor’s and Fitch, and Baa3 or higher at Moody’s, are considered investment grade. “The way the rating agencies look at them, they rate them double Bs, but if you think about them on a more market type of basis, they’re very high quality, and we would call them more triple Bs,” Goodman said. “They trade expensive for double Bs, but cheaper [for] triple Bs, and so that to us is a great example of something that’s falling through the cracks,” he added. Anticipating the Fed’s next move If the team gets to the point where they think the Federal Reserve is closer to cutting interest rates, they would increase duration in the fund, Goodman said. They would probably add some credit risk, as long as the central bank was decreasing rates because it has conquered inflation, he said. If the rates were eased because the economy looks to be heading into recession, that would be good for Treasurys and not credit, he noted. However, no one has a crystal ball to know if and when rate cuts are coming, so the portfolio managers focus on setting the fund up well, Goodman said. “We’re trying to buy those assets that are optimized from a risk/return perspective,” he said.
