Western Asset Total Return ETF’s Process Pillar rating is Average, but a strong management team still helps this strategy retain its Morningstar Medalist Rating of Bronze. The portfolio maintains a cost advantage over competitors, priced within the cheapest fee quintile among peers.  

 The strategy’s management team earns an Above Average People Pillar rating. The strategy earns an Average Process Pillar rating.  The strategy's parent organization earns the firm an Average Parent Pillar rating. People 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

Morningstar's evaluation of this fund's process seeks to determine how repeatable, consistent, and reliable it is, and whether management maintains a competitive advantage. Western Asset Total Return ETF earns an Average Process Pillar rating.    The leading factor in the rating is the experience of the management team, which averages 27 years at this fund. The size of the portfolio management team also contributes to the process. With five portfolio managers, the fund is well-staffed. Lastly, the process is limited by the parent firm's five-year risk-adjusted success ratio of 37%. The measure indicates the percentage of a firm's funds that survived and outperformed their respective category's median Morningstar Risk-Adjusted Return for the period. The parent's subpar success ratio suggests that the firm could do better across its fund lineup.

 Compared with other funds in the Intermediate Core-Plus Bond Morningstar Category, this fund, historically, hews closely to peers' credit and interest-rate sensitivity over the past few years. Opening the analysis to additional factors, the portfolio has displayed biases over time, whether towards or away from certain fixed-income instruments. Relative to the average strategy in the category, the managers have been overweight A rated bonds in recent years. In the latest month, the strategy has relatively overweighted A rated bonds compared with its peers as well. Additionally, the fund has exhibited a sector bias towards corporate debt over the past few years. Compared with category peers, the strategy had more exposure to corporate bonds in the most recent month. Finally, during the past few years, the fund leaned away from debt with seven- to 10-year maturities. In recent months, the strategy also had less exposure to debt with seven- to 10-year maturities compared to its peers.

 This strategy has a modest 3.7% 12-month yield, lower than its average peers' 3.9%. Plus, its 30-day SEC yield (a measure similar to yield-to-maturity) sits at 4.9%. While a lower yield may deliver less income, it also tends to indicate lower credit risk. The portfolio holds assets with a higher average surveyed credit quality of A, compared with the typical peers' BBB, and 8% of the strategy's assets are rated non-investment-grade, similar to its peers' average. Strategies with lower credit risk can typically withstand market turmoil more effectively.

Average

Process

Western Asset Total Return ETF earns an Above Average People Pillar rating. S. Kenneth Leech, the longest-tenured manager on the strategy, provides strong guidance, bringing forward over 25 years of listed portfolio management experience. The strategies they currently manage have an average Morningstar Rating of 2.5 stars, demonstrating disappointing risk-adjusted performance compared with category peers. The team boasts an experienced corps of listed portfolio managers, with four others supporting S. Kenneth Leech. Together, they average over 25 years of listed portfolio management experience. As a team, they manage eight investment vehicles together, with a Neutral asset-weighted average Morningstar Medalist Rating, indicating the team will struggle to deliver positive alpha in aggregate. None of the managers here invest any money in the strategy, which is disappointing, as such investments help align managers' interests with fundholders.

 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.

Above Average

People

Franklin Templeton Investments, the asset-management arm of publicly traded but family managed Franklin Resources BEN, has been busy with acquisitions. The struggle in streamlining these disparate capabilities underpins its Average Parent rating. 
Franklin’s July 2020 acquisition of multiboutique manager Legg Mason remains its largest as of March 2023, but the firm has continued to grow through acquisitions. Its April 2022 and November 2022 purchases of Lexington Partners and Alcentra, respectively, make it one of world’s largest managers of alternative investments (with alts comprising USD 231 billion of its USD 1.4 trillion assets under management as of December 2022), while its July 2022 acquisition of O’Shaughnessy Asset Management adds a novel direct-indexing capability to its managed account offerings. These purchases, however, do little to alleviate the operational complexity of a firm with dozens of investment teams split by asset class, region, and investment platform.   
Although there are several standout strategies at the firm, many teams have struggled with personnel turnover, succession challenges, and unappealing performance patterns. Shepherding these geographically disparate capabilities, which have varying levels of centralization of distribution and risk management, shall be quite the challenge for the firm to manage.

Parent

Western Asset Total Return ETF

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