The March issue of our Bond Fund Intelligence, which will be sent to subscribers Wednesday morning, features the stories, "Corporate Bond Funds Get Hot, But Risks Are Rising," which follows the most recent news on investment grade funds and "EFAMA Says 2023 Big Year for Bond Funds, MMFs in Europe," which reviews recent monthly statistics on European bond funds. BFI also recaps the latest Bond Fund News and includes our Crane BFI Indexes, which show that bond fund returns fell in February while yields increased. We excerpt from the new issue below. (Contact us if you'd like to see our latest Bond Fund Intelligence and BFI XLS spreadsheet, or our Bond Fund Portfolio Holdings data.) (Note: Please join us for our upcoming Bond Fund Symposium, which is March 25-26 in Philadelphia!)
Our "Corporate Bond Funds Get Hot" piece states, "Corporate bonds account for just over 20% of the overall bond market vs. over a third for Treasury debt. In February, though, corporate debt was in the news with several articles published. Though they disagree on the segment's outlook, they do agree that it’s been a nice run so far. We quote from a couple below."
The piece continues, "Barron's 'Corporate Bond Funds Are Surging. What to Watch Out For' says, 'Investors are snapping up corporate bonds, enticed by higher yields and the hope that a soft economic landing means the Federal Reserve will cut interest rates. Those hopes may well be dashed. Beginning late last year, investors started to step further out on the yield curve and became more willing to take on credit risk, says Jack Fischer, senior research analyst at LSEG Lipper. As of Feb. 12, net flows into short-intermediate investment-grade debt mutual funds and exchange-traded funds this year were about $20 billion, compared with $50 billion in all of 2023.'"
Our "EFAMA" article states, "EFAMA, the European Fund and Asset Management Association, published, 'Bond funds, money market funds, and ETFs had a good year in 2023.' The summary says, 'In our latest Monthly Statistical Release, we show the following main developments in December 2023 for the European investment fund market. A first overview and analysis of the full year 2023 is also included.' Bernard Delbecque, Senior Director for Economics and Research at EFAMA, comments, 'In 2023, the high level of interest rates and the more gradual tightening stance spurred significant net inflows into money market funds and bond funds. Concurrently, net sales of actively managed equity funds experienced a lack of investor demand, whereas ETFs took the forefront in driving net sales within the equity fund landscape.'"
It states: "Thomas Tilley, Senior Economist at EFAMA, adds, 'Net sales of bond UCITS remained at a high level in December as some investors were already anticipating interest rate cuts in 2024.'"
Our first News brief, "Returns Down, Yields Inch Up in Feb.," says, "Bond fund returns declined after two months of positive returns while yields rose slightly last month. Our BFI Total Index lost 0.23% over 1-month but gained 5.45% over 12 months. The BFI 100 fell 0.51% in Feb. and rose 5.12% over 12 mos. Our BFI Conservative Ultra-Short Index was up 0.35% over 1-month and 5.58% for 1-year; Ultra-Shorts rose 0.35% and 5.93%. Short-Term fell 0.23% and rose 5.32%, and Intm-Term fell 0.90% in Feb. but rose 3.78% over 1-year. BFI’s Long-Term Index fell 1.12% but rose 4.05%. High Yield rose 0.40% in Feb. and 9.37% over 12 months."
A second News brief, "CityWire Asks, 'Are Bond Funds Back or Is It All Just Pimco Income?' The article tells us, 'Bonds are back baby, or so we've been told.... [But PIMCO's] total assets in US mutual funds and ETFs were $370.9bn at the end of January, still some way off their recent peak of $435.2bn in December 2021. Much of that decline was, of course, driven by the correction in fixed income markets over 2022, but outflows played their part too. Some of these flows have been recouped, with $8.4bn of net new money coming in over 2023, but even with that money the group is still nursing a $45bn outflow since the start of 2022.... It is also worth noting that Pimco -- despite the huge success of the Pimco Income fund... -- is still also some way off its all-time peak in mutual fund and ETFs assets; $622bn in April 2013.'"
Our next News brief, "Barron's Writes, 'These Muni Funds Sport Strikingly High Yields.' The article explains, 'Looking for tax-free returns and some of the fattest yields in the bond market? Consider funds that invest in the high-yield segment of the municipal bond market. According to BofA Securities, this is a great time to buy these bonds, which are issued by turnpike authorities, hospitals, and other state and local entities.' Jared Woodward, BofA's head of exchange-traded fund strategy, says, 'High-yield munis offer 8% to 9% yields on a tax-adjusted basis, near the highest levels since 2017, but with less default risk than high-yield corporate bonds.... You're getting more yield for less risk.' It continues, 'Woodward says that over the past year, high-yield muni ETFs suffered outflows while investors poured money into long-term Treasury bond ETFs. That may have been the wrong call.... BofA's three top-rated muni bond ETFs ... are the SPDR Nuveen Bloomberg High Yield Municipal Bond ETF (HYMB), VanEck High Yield Muni (HYD), and First Trust Municipal High Income (FMHI).'"
A BFI sidebar, "BlackRock's Rieder on BINC," says, "Barron's 'How to Earn High Income With Low Volatility in Bonds' tells us, 'Investors don’t tend to demand too much from their fixed-income portfolio. Give us a meaningful yield without too much volatility and we're happy. Recently, however, that has been too much to ask for -- not because of the yield, but because of the volatility. The MOVE Index, a measure of interest-rate volatility, has been running about twice as high over the past two years as it did during the previous two -- and at levels not seen since the 2008-09 financial crisis.'"
Finally, another sidebar, "Cash to Move to Bond ETFs?" comments, "We learned from ignites about a survey from ISS Market Intelligence titled, 'RIA Market Insights - Refining the Opportunity.' It states, 'The Retail Registered Investment Advisor (RIA) ... market has been around since the early 1990s, and it remains a source of innovation and growth in the financial advisor marketplace and a distribution opportunity for asset management firms.'"
