Strength in Western Asset Short Duration Inc ETF's People Pillar is partially offset by an Average Process Pillar rating, leading to a Morningstar Medalist Rating of Neutral. The portfolio maintains a cost advantage over competitors, priced within the cheapest fee quintile among peers.  

 The strategy receives an Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a significant overweight position in corporate bonds and an underweight in AAA rated bonds compared with category peers. The strategy’s management team earns an Above Average People 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 style-agnostic evaluation of this fund's process seeks to understand whether the strategy has a performance objective and sensible, repeatable execution. Western Asset Short Duration Inc ETF earns an Average Process Pillar rating.    The predominant contributor to the rating is the experience of the management team, which averages 23 years at this fund. Excellent risk-adjusted performance also strengthens the process. This can be seen in the fund's five-year alpha calculated relative to the category index, which suggests that the managers have shown skill in their allocation of risk. 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 Short-Term Bond Morningstar Category, this fund takes on higher credit risk. But in terms of long-term interest-rate sensitivity, it hews closely to its average peer 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 category average, the managers have been substantially overweight corporate bonds in recent years. In the latest month, the strategy has relatively overweighted corporate bonds compared with its peers as well. Additionally, there's been a notable bias away from AAA rated bonds over the past few years. Similarly, in recent months, the strategy also had less exposure to AAA rated bonds than peers. Finally, during the past few years, the fund leaned away from debt with longer than 30-year maturities. Nevertheless, the fund's debt with longer than 30-year maturities exposure was in line with peers in the latest month.

 This strategy's 12-month yield is 4.5%, higher than its average peer's 3.7%. Plus, its 30-day SEC yield (a measure similar to yield-to-maturity) sits at 5.6%. Higher yields tend to indicate higher credit risk. The portfolio has a lower average credit rating of BB, compared with the category average's A and 17% of the fund's assets are rated non-investment-grade, compared to its peers' 2%. Lower quality bonds have higher yields but come with more risk.

Average

Process

Western Asset Short Duration Inc ETF earns an Above Average People Pillar rating. Ryan K. Brist, the longest-tenured manager on the strategy, boasts over 25 years of listed portfolio management experience. The average Morningstar Rating of the strategies they manage is 3.9 stars, demonstrating above-average risk-adjusted performance relative to category peers. A large cast of five additional named managers adds to the team's appeal, averaging 23 years of listed portfolio management experience. As a team, they manage four investment vehicles together, with an asset-weighted average Morningstar Medalist Rating of Neutral. This means, in aggregate, the team falls short and will struggle to produce positive alpha. 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 Short Duration Income ETF

WINC is an actively-managed portfolio of USD-denominated, short-term corporate debt securities issued by US or foreign entities.

News for Western Asset Short Duration Income ETF ETF (WINC)