Allianz Income and Growth BT USD |
Morningstar's Take
|10/07/2024by Hyunmin Kim
| We have qualitatively reviewed Allianz Income & Growth and reaffirmed its People and Process ratings. The fund has maintained its stable and growing team amid firm-level disturbances, but its questionable portfolio design and fixed distribution target expose investors to undue volatility. The following text is from Oct. 4, 2023. The Income and Growth team came out mostly unscathed when the SEC charged Allianz Global Investors with fraud and disqualified it from providing advisory services to US-registered investment funds in May 2022. Despite the rushed move to Voya Investment Management, the team maintained all its investment personnel and tools and provided continuity. Moreover, it has been prudently adding to its specialist capabilities by hiring one or two analysts per year since 2017. Currently, eight research analysts and one data analyst support the strategy. The team has shown thoughtful transitions over the years. Justin Kass and Michael Yee have contributed to this strategy since its 2007 inception, and David Oberto started contributing well before his 2017 promotion to portfolio manager. When the previous CIO of the group Douglas Forsyth announced his retirement in 2021, Kass assumed the CIO role and gradually shifted his convertible bond coverage over the following year to Ethan Turner, who now leads the convertibles sleeve. The group has built a decent track record. Over the trailing 10 years ended June 2023, the 7.4% annualized gain of the fund’s institutional share class outpaced the Morningstar Moderate Target Risk Index’s 6.1% and beat two-thirds of its peers in the moderate allocation Morningstar Category. The strategy’s structure, however, courts excess risk. It is divided evenly across three sleeves: Yee manages the equity portfolio with a covered-call overlay, Oberto focuses on high-yield bonds, and Turner has transitioned onto the convertibles sleeve with support from Kass, who previously managed that allocation. This bucketed approach does not produce a balanced portfolio as the three sleeves can be highly correlated, especially during periods of market stress. Indeed, the strategy struggled in 2022’s selloff. Its 19.6% loss was 4.9 percentage points deeper than the benchmark and placed in the category’s 99th percentile. Investors holding this fund in a taxable account should also beware. A fixed distribution target can force managers to take more risk or, at worst, return capital to meet their goals. In the past several years, short-term capital gains have represented about 75% of the annual payout, leading to a tax-cost ratio more than double the category average. |
A risky portfolio in experienced hands.To find out how Morningstar rates a fund click here.
| Morningstar Pillars | |
| People | Above Average |
| Parent | Average |
| Process | Below Average |
Morningstar Medalist RatingMorningstar assigns the Medalist Rating to funds that are qualitatively and quantitatively assessed through manager research and algorithmic processes. The assessment turns on three key “pillars” – People, Process, and Parent – that yield an estimate of how well a fund will perform before fees but after adjusting for risk.
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