AB American Income A EUR |
by Sam Kulahan
On Feb. 7, 2023, AB named director of U.S. high yield William Smith as a comanager on two strategies, AB Income and AB American Income. Smith joined AB in 2012 and has been a comanager on AB High Income AGDAX since January 2022. Smith joins AB veterans Gershon Distenfeld, Scott DiMaggio, Matt Sheridan, and Fahd Malik on the portfolio management roster of these two strategies. AB adopts a team-based approach to manage its fixed-income offerings, and Smith's addition to the portfolio management roster does not alter our view of these funds. AB Income retains its Morningstar Analyst Ratings of Bronze on its cheapest share class and Neutral on its pricier shares. AB American Income retains Analyst Ratings of Neutral on its cheapest share classes and Negative on its pricier shares. |
AB American Income’s long-standing credit barbell approach continues to be led by experienced managers, but turnover across its supporting cast dampens our confidence in this offering. AB’s co-heads of fixed income Gershon Distenfeld (credit) and Scott DiMaggio (rates) oversee this strategy alongside day-to-day comanagers Matthew Sheridan and Fahd Malik. AB’s director of U.S. high yield Will Smith was added to the strategy’s management team in February 2023 and offers input on best ideas in the sector. A broad group of more than 20 sector portfolio managers and 40-plus credit, securitized, economic, and quantitative analysts back the managers. That said, churn across AB's fixed-income group at all levels has been persistent since 2019. While AB has replaced the vast majority of departures, particularly by promoting internal talent, the new guard has yet to prove its edge. The strategy implements a credit barbell approach, which has allowed the group’s credit research to shine while effectively balancing its risk-taking with a ballast of U.S. Treasuries (generally 25%-50% of assets). While its sector makeup can change significantly over various market environments, the team has kept its investment-grade (19%) and high-yield corporate (32%) stakes fairly steady over the year through June 2023, while trimming its stakes in securitized (13%) and U.S.-dollar-denominated emerging-markets (12%) debt and adding to its Treasuries (56%) position. This credit barbell approach has delivered over the long haul, landing the strategy’s I Inc share class in the USD flexible bond Morningstar Category’s best quintile over Distenfeld’s tenure from January 1998 through September 2023. But the portfolio’s formerly elevated securitized exposure (28% in December 2019), particularly its stakes in credit risk transfer securities and commercial mortgage-backed securities, played a key part in the strategy falling 17.1% during the coronavirus market turmoil from Feb. 20 through March 23, 2020, landing in the worst third among peers. While the strategy rebounded strongly over the remainder of 2020, a rocky 2021 and 2022 for Treasuries and emerging-markets debt have again left it lagging peers. Despite a solid investment process, instability in the supporting cast raises doubts about this fund’s long-term prospects. |
Morningstar Pillars | |
People | Average |
Parent | Average |
Process | Above Average |
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