For Mary Ellen Stanek, co-head of investing at Baird Advisors, success in fixed income isn't about making big profits. Instead, it's important to have a “really high batting average,” the 45-year-old industry veteran told CNBC. “We don't think this is an asset class where you're typically paid to take home gains,” she said. “If you think about those big home run hitters, they also often have very high home run percentages — that's the thing we're trying to avoid.” Instead, Stanek strives for consistency. It follows a duration-neutral approach, setting duration equal to the index followed by each fund. The team then spends its energy on areas it believes have the greatest potential to add value — given yield curve positioning, sector allocation and individual security selection, she said. The result has been very competitive track records, said Stanek, who, as associate director of IT, oversees $136.5 billion in fixed income assets, as of March 31. “We would say the ride is smoother than most products,” she said. This success can be seen in funds like the Morningstar Gold-rated Five-Star Total Bond Fund. The institutional stock, which trades under the ticker BAGIX, has a 30-day stock yield of 4.36% and an expense ratio of 0.30%. Investor shares, which trade under the ticker BAGSX, have a 30-day stock yield of 4.11% and an expense ratio of 0.55%. The BAGSX 1Y Mountain Baird Aggregate Bond Fund, a stock investor since BAGIX's inception in 2000, saw annual gains of 4.74% through March 31, 2024, according to Baird. During that period, it outperformed its benchmark index — the Bloomberg U.S. Aggregate Index — by 66 basis points, the company said. It's also in the top quintile among its peers, according to Morningstar. One basis point is equal to one hundredth of a percentage point. From bear market baby to industry accolades, Stanek's investment philosophy has been honed throughout her years of experience. She grew up a banker's daughter and worked college summers at her father's community bank. This experience helped her land her first job out of college in fixed income in 1979 at First Wisconsin Trust. This happened at a time when interest rates began to rise sharply and became very volatile. By July 1981, the yield on 10-year Treasury bonds reached 15.82%. “Calibrating opportunity versus risk,” Stanek said. A few years later, she was promoted to chief investment officer. In 1985, she launched her duration-neutral strategy and hasn't looked back. In 2000, she was among the leaders who founded Baird Advisors. The team manages a number of fixed income funds in addition to the Baird Aggregate Bond Fund, including the 5-star Morningstar Baird Intermediate Bond Fund. The product was one of the best-performing actively managed bond funds in 2023, according to Morningstar. BIMSX 1Y Mountain Baird Intermediate Bond Fund, Equity Investors “Our mission is to offer a competitive product and attractive returns, but also in a format and concept where you can understand the risks we are taking, and you can feel comfortable, confident, and sleep better at night,” Stanek said. Along the way, she's also received numerous accolades, including being named to Pensions & Investments magazine's 2023 Influential Women in Institutional Investing list, and in 2022 named a Distinguished Portfolio Manager by Morningstar Where she sees opportunity Now, Stanek and her team are being selective “Right now, credit spreads have become narrower and the allocation to Treasuries has risen slightly in portfolios, while credit has fallen a bit,” she said. “We are selectively putting in new money, selling when things get too tight in our view, and being very patient, being careful.” “We keep dry powder in portfolios for better opportunities,” she said. With bonds, investors should consider getting out of the curve. With the yield curve still inverted, short-term Treasury yields are above 5%. “As attractive as this is, don’t get caught,” Stanek warned. “At some point, the curve will correct itself and short-term interest rates will fall, and then you will feel sorry that you did not maintain those high yields for a longer period of time,” she said. Stanek suggests conducting annual reviews of your portfolio to determine if your asset allocation still makes sense. For those who have a long-term horizon and want to get out of the curve, do so in phases, she said. “A lot of people would be paralyzed if he made this big, one-time decision,” Stanek said. “Have a plan and maybe do it in three segments, or…one segment every three months, and just know that you're continuing to get out of the curve in a systematic way.” It also sees some opportunities within securitized products, such as residential and commercial agency mortgage-backed securities, as well as non-agency-rated MBS assets. “Securitized sectors that tend to be higher quality generally continue to offer very good value,” she said. “But we are very selective – we are bottom-up investors.” Diversification is also important because although the returns are good right now, there is a long list of things that could potentially go wrong, Stanek said. It's all about careful risk management, she said. “Sometimes we say to ourselves, 'We've seen this movie before,'” Stanek said. “If we don't get paid to take on more risk in portfolios, it's okay if we continue to look for higher quality places to invest in and be patient and wait for better relative risk and relative value.”
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Baird's co-CIO, Stanek, delivers Morningstar's five-star bond funds
