BNY Mellon Core Bond ETF’s management team is rated Average, but a solid investment process still helps this strategy retain its Morningstar Medalist Rating of Silver. The portfolio maintains a sizable cost advantage over competitors, priced within the lowest fee quintile among peers.  

 The strategy merits an Above Average Process Pillar rating. The strategy’s management team earns an Average People Pillar rating. The strategy's parent organization earns the firm an Average Parent Pillar rating. Process Pillar and Parent Pillar ratings for this strategy are indirectly assigned by a Morningstar analyst rather than algorithmically derived. Please see the notes following each pillar section for more details. The details of assigning methods can be found in each pillar section.

Analyst Rating

This portfolio holds fixed-rate, taxable, investment-grade U.S. bonds with at least one year until maturity. Qualifying bonds must have at least $300 million in outstanding face value. The index is market-value-weighted and rebalances each month. This results in a conservative portfolio that limits return and yield potential but also caps risk.

The portfolio's conservative complexion mimics that of the taxable, U.S. investment-grade bond market. U.S. Treasuries account for almost 43% of the portfolio, with agency mortgage-backed securities, and corporate bonds making up 26% and 24% of the portfolio, respectively. These figures differ from the category average, which places greater emphasis on corporates and other securitized fare, at the expense of Treasuries. The fund also excludes high-yield debt. Some peers allocate as much 5% of their portfolios to sub-investment-grade bonds, further accentuating the fund's conservative bend relative to category peers. 

Average effective duration has fluctuated in recent years. As an index fund, the fund is beholden to the issuing activity of bond types prevalent in the portfolio. This means the issuing activity of U.S. Treasuries and agency MBS’ largely determine the makeup of the portfolio. As the Federal Reserve cut rates to zero following the initial coronavirus-driven shock in early 2020, issuance of low-coupon, longer maturity debt surged, and this portfolio collected the bulk of those bonds. This led to higher duration and lower coupons compared with active peers. 

With less credit risk comes less reward, and the fund leaves yield on the table by focusing on U.S. Treasuries and other AAA rated debt. Its average coupon and 12-month yield consistently trail the category average, with average coupon and 12-month yield falling 33 and 20 basis points short of the category norm, respectively, as of February 2023.

Note: The Process Pillar rating and analysis are indirectly assigned by an analyst. When an analyst covers a passively managed vehicle that tracks a particular index, Morningstar associates the Process Pillar rating assigned to that vehicle with the index concerned. Morningstar then maps the Process Pillar associated with a given index to any other uncovered passive strategies that track the same index. This ensures that the analyst’s view is leveraged whenever available and promotes consistency when analyzing passive vehicles associated with a given index.

Above Average

Process

BNY Mellon’s team is good but unexceptional, earning the strategy an Average People Pillar rating. There are two managers listed on the fund: Nancy Rogers, Gregory Lee. Experience on the team is abundant, with 23 years of average portfolio management experience. Together, they manage a total of two strategies, with a Bronze asset-weighted average Morningstar Medalist Rating, indicating the potential to deliver positive alpha relative to the category median in aggregate.  

 Note: The People Pillar rating is indirectly assigned by an analyst. The longest-tenured manager of the fund also manages a different product rated by an analyst. Their analyst-assigned People Pillar rating is combined here with the People scores (algorithmic or analyst-assigned) for the fund’s other managers on a tenure-weighted basis.

Average

People

BNY Mellon Investment Management, the asset-management arm of financial conglomerate Bank of New York Mellon, has been busy with changes since CEO Hanneke Smits ascended to her seat in October 2020. The firm’s seven wholly owned but autonomous investment affiliates mostly focus on distinct asset classes. Smits streamlined this arrangement in February 2021 by consolidating most of BNYIM’s active fixed-income and equity capabilities into two affiliates, Insight and Newton, respectively, and by trimming overlapping investment teams; further, the firm sold private-credit-focused Alcentra to Franklin Templeton in May 2022 partially because of that boutique’s operational complexity. Smits believes these organizational changes should help BNYIM’s affiliates manage their strategies more effectively. Yet the firm’s broad strategy lineup remains bloated owing in part to the affiliates’ openness to customized client requests regardless of asset size. 

Smits has sought to improve collaboration across the firm’s investment teams, including by pushing affiliate CEOs to replace “star managers” with comanagers on most strategies. This is a noteworthy effort, but it led to the departure of some managers who didn’t want to partake in the new model. Amid the uncertainty of how these and other changes ultimately shake out, the firm retains its Average Parent rating.

Parent

BNY Mellon Core Bond ETF

BKAG tracks a broad index of US investment-grade fixed income securities, including Treasurys, agencies, CMBS, ABS and corporates.

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