Why We Upgraded Our Rating of This Bond Fund

Under the guidance of manager Jason Appleson, PGIM Muni High Income PHIQX witnessed incremental improvements, resulting in a boost to its People Pillar rating and an upgrade of its overall Morningstar Medalist Rating in May to Bronze from Neutral in May 2024.

Appleson assumed leadership in January 2022 following the retirement of long-tenured manager Susan Courtney at the end of 2021. While Appleson’s industry experience may not match Courtney’s three-plus decades, his ongoing efforts to enhance the team’s approach inspire confidence.

Since taking over, Appleson has focused on empowering analysts to take greater ownership of their relative value work alongside new head of credit research Sean McCarthy. The team’s seven-person analyst bench now issues buy and sell recommendations based on a given credit’s value relative to others in its respective sector. Despite its modest size versus industry rivals, the team’s extensive experience (averaging two-plus decades) positions it competitively.

Appleson is establishing his track record in this role and has already guided this strategy to strong peer-relative results during his short tenure. The strategy’s 8.9% return in calendar-year 2023 surpassed over 80% of distinct peers, marking the fund’s best peer-relative performance in 15 years.

Key Morningstar Metrics for PGIM Muni High Income

Morningstar Medalist Rating: Bronze

Process Pillar: Average

People Pillar: Above Average

Parent Pillar: Above Average

A Seasoned Team Ably Executes This Higher-Risk Strategy

Elevating BlackRock Dynamic High Income’s BDHIX Process Pillar rating to Average from Below Average boosted its Medalist Rating to Bronze from Neutral.

Comanagers Justin Christofel and Alex Shingler are well-equipped to implement this research-driven, income-focused, and risk-aware approach. Although the fund carries more credit risk than many peers, the team has struck an acceptable balance between delivering high income and taking measured risk. The team’s macro outlooks guide portfolio allocation and security selection shifts, and it invests across various income-generating asset classes, including less-liquid ones like some collateralized loan obligations. The well-resourced underlying sleeve managers adeptly select individual securities tailored to the strategy’s mandate. The experienced management team, supported by the firm’s risk-management group and underlying sleeve managers, instills confidence in the strategy’s execution.

Key Morningstar Metrics for BlackRock Dynamic High Income

Morningstar Medalist Rating: Bronze

Process Pillar: Average

People Pillar: Above Average

Parent Pillar: Above Average

Quality-Oriented Approach Pays Off

The Medalist Rating for Fidelity Advisor Small Cap FSCIX was upgraded to Silver from Bronze last month after a Process Pillar upgrade to Above Average from Average

Managed by Jennifer Cardillo since June 2019, the portfolio is divided into three segments: stable growers, opportunistic names, and exceptional growers, all chosen for their strong competitive positions and above-average returns. Cardillo has refined the strategy by keeping it fully invested, reducing non-US exposure, increasing the number of holdings to around 150 to mitigate security-specific risk, and incorporating more growth-oriented ideas. The portfolio’s metrics, such as return on equity and return on assets, generally outperform those of the Russell 2000 and Russell 2000 Growth indexes, while valuation metrics remain reasonable. Sector weightings are mostly aligned with the index, with some divergences like a higher biotech stake and a slight bias toward cyclical sectors to balance quality and participate in market rallies.

Key Morningstar Metrics for Fidelity Advisor Small Cap

Morningstar Medalist Rating: Silver

Process Pillar: Above Average

People Pillar: Above Average

Parent Pillar: Above Average