layer in investment-grade credit and high yield , and those yields are even higher .”
Exploiting Inefficiencies
The Core Plus Bond Fund took its lumps in 2022 with a 13.7 % loss . That was 42 basis points worse than its intermediate core-plus bond category tracked by Morningstar . Nonetheless , the fund has produced impressive long-term returns , including top-quartile average annual returns in its category in the five , 10 and 15-year periods , according to Morningstar . It also topped its category peer average and its Morningstar-designated benchmark in the one- and three-year periods ( as of early February ).
Core-plus fixed income is a total-return strategy that invests across the broader bond market . The Allspring fund ’ s benchmark is the Bloomberg U . S . Aggregate Index , which tracks the investment-grade , U . S . dollar-denominated , fixed-rate taxable bond market .
According to Allspring , the core-plus bond category aims to improve on the yield and return of the benchmark with exposures to sectors , geographic markets and currencies beyond the core bond category . Allspring posits that the modest increase in volatility in core-plus portfolios has yielded attractive results , and that the Core Plus Bond Fund has handily topped its Agg benchmark in every measurable period since the fund ’ s 1998 inception .
As for yield , the fund ’ s institutional share class sported a 30-day SEC yield of 4.75 % as of January 31 . The SEC yield is used to compare bond funds and doesn ’ t exist at the index level . The SEC yield on the iShares Core U . S . Aggregate Bond ETF , which tracks the Bloomberg Agg and could be used as a proxy , was 4.2 % in early February .
Portfolio Statistics
Number Of Holdings 716 Effective Duration
6.30 years Turnover Ratio 232.76 % Net Expense Ratio 0.36 %
Portfolio stats as of 12 / 31 / 23 . Expense ratio figures are for the Institutional class shares . Sources : Allspring and Morningstar .
“ Fixed-income markets in general have a lot of inefficiencies . This strategy has been designed to take advantage of that .”
— Janet Rilling
“ Fixed-income markets in general have a lot of inefficiencies ,” Rilling says . “ This strategy has been designed to take advantage of that . The reason we like a coreplus strategy is that it has latitude to move from sector to sector .”
The fund can allocate up to 35 % of its portfolio to what Allspring calls “ plus ” sectors such as high-yield debt , emerging markets debt , and non-U . S . -dollar corporate and government debt .
“ We manage the portfolio as a foundational fixed-income allocation , and we ’ ll always have at least 65 % in the investment-grade or the core part of the portfolio in those Agg sectors ,” Rilling explains . “ That gives us the return stream that ’ s correlated with the fixed-income market , and leaves us with 35 % that we can allocate to the plus sectors .”
The fund has historically averaged about 15 % in its plus sectors , but that number has varied from a low of 11 % to as much as 30 %. The fund recently had about 16 % allocated to the plus category .
Of late , securitized assets have grabbed the attention of the fund ’ s five managers . As of last year ’ s fourth quarter they made up 46 % of the portfolio , which was 17 percentage points more than the Agg ’ s allocation .
Securitized assets distribute risk by aggregating debt assets into a pool , then issue new interest-paying securities backed by the pool . They include the likes of agency mortgage-backed securities , asset-backed securities , collateralized loan obligations and commercial mortgagebacked securities , or CMBS — all of which play a role in the fund ’ s portfolio .
Rilling notes that the last of these , CMBS , has been in the eye of the storm , particularly when it comes to office properties . “ We were neutral to underweight earlier last year , but we ’ ve been opportunistic on the margin adding exposure . We ended the year at between 2 % and 3 % in CMBS . We ’ re selective in what deals we add .”
As Michael Schueller , one of the fund ’ s co-managers , describes it , “ We ’ re very focused on valuations , so we ’ re waiting for dislocations . When dislocations occur and valuations overreact to that we ’ ll move capital quickly to take advantage of those opportunities .”
46 | FINANCIAL ADVISOR MAGAZINE | MARCH 2024 WWW . FA-MAG . COM