Emory Zink: American Funds Short-Term Bond Fund of America and American Funds Intermediate-Term Bond Fund of America are both Bronze-rated constituents of the short-term bond Morningstar Category, but they offer subtle variations on a conservative theme.
They are run by Capital Group, whose fixed-income offerings have benefited from a multiyear program of upgraded analytical tools, quantitative-risk systems, and a more coordinated macroeconomic guidance. These strengthened resources, coupled with a mandate that aims to provide ballast over boost, result in a tilt to higher quality holdings. As of late 2018, a typical short-term bond peer held around 70% of its portfolio in securities rated A or higher, but in the case of either of these funds, it was greater than 90%. Given this buttoned-up approach to credit risk, performance of either fund is likely to lag its typical peer during credit-fueled rallies, but when credit is under stress, as it was in 2018's fourth quarter, that same profile will help these funds to shine relative to peers.
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Emory Zink does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.