The November issue of our Bond Fund Intelligence, which was sent to subscribers Friday morning, features the stories, "Bond Funds Hit by Election Inflation Fears, But Inflows," which reviews the recent jump in bond yields, and "ETF Trends: MM Substitutes, Ultra-Shorts; Steepener," which covers the expected shift into ultra-shorts. BFI also recaps the latest Bond Fund News and includes our Crane BFI Indexes, which show that bond fund returns fell in October while yields were higher. 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: See also Bloomberg's "A $7 Trillion and Growing Cash Pile Defies Wall Street Skeptics.")
BFI's "Bond Funds Hit" article states, "While bond funds continued to see strong inflows in October, bond returns and assets fell in anticipation of and following the election. Bond funds declined by 1.14% on average after 5 months of gains, while total bond fund assets fell by $18.6 billion to $2.836 trillion, according to Bond Fund Intelligence."
The piece says, "The New York Times writes 'Lower Rates, Rising Yields: What to Make of the Bond Market Right Now,' which tells us, 'There is an adage in markets that stock investors are optimists and bond investors are pessimists. As the ticker tape adjusted on Wednesday to Donald J. Trump's victory, stocks soared in a sign of bullish enthusiasm for his policies of tax cuts, deregulation and stimulative government spending (as well as relief that the election had concluded with a clear winner).'"
Our "MM Substitutes" article states, 'Investors have been married to their money market funds for the better part of the last two years. But a recent poll from VettaFi's Q4 Fixed Income Symposium in October showed more market participants may finally be willing to break out of their comfort zones and redeploy those funds into riskier assets. 76% of advisors said they were looking to cut back their allocation to money market funds in the next 12 months. This is a move that has arguably been long overdue.'"
It states, "They tell us, 'Plenty of cash will likely remain in money market funds even after some reallocation. Short duration products still offer attractive real positive yields, so the cost of staying short is not particularly high. Even if investors start to funnel more cash into other financial assets, it may take a while to make a significant dent in the record $6 trillion of cash still parked on the sidelines. Meanwhile, short Treasury bond ETFs, floating-rate instruments and ultra-short term structured products can all offer attractive money market fund-like alternatives.'"
Our first News brief, "Returns Lower, Yields Jump in Oct," explains, "Bond fund returns were lower in October after 5 straight months of gains. Yields jumped. Our BFI Total Index fell 1.14% over 1-month but are up 10.39% over 12 months. (Money funds rose 5.21% over 1-year as measured by our Crane 100 Index.) The BFI 100 decreased 1.56% in Oct. but rose 10.72% over 12 mos. Our BFI Conservative Ultra-Short Index was up 0.25% over 1-month and 6.26% for 1-year; Ultra-Shorts rose 0.18% and 6.77%. Short-Term returned -0.54% and 7.87%, and Intm-Term fell 2.11% in Oct. and rose 10.99%. BFI’s Long-Term Index was down 2.46% and up 12.79%. High Yield fell 0.31% in Oct. and rose 13.74% for 12 mos."
A second News brief, "A Barron's Piece, 'Schwab to Launch New Active Bond Fund Amid Banner Year for ETFs,' explains, 'Charles Schwab plans to launch a new actively-managed fixed income exchange-traded fund, which comes as the asset management industry is placing greater emphasis on packaging active strategies in an ETF format. The Schwab Core Bond ETF will be the company's third active ETF. The Core Bond ETF seeks to provide total return while generating income through investing in U.S. debt securities, such as corporate bonds, municipal bonds, and Treasuries, according to the company's filing with the SEC.'"
Our next News brief, "Morningstar Writes on '2 Top-Performing Core Bond Funds,' tells us, 'With the Federal Reserve moving to cut interest rates, core bond funds (a key building block of most portfolios) are posting modest gains in 2024.... We looked for the top-performing intermediate core bond funds over the last one-, three-, and five-year periods. Two funds made it through the screen, both of which are actively managed: Baird Aggregate Bond Inst (BAGIX) and JPMorgan Mortgage-Backed Securities I (OMBIX).'"
A BFI sidebar, "Bond Funds to Benefit," says, "Morningstar writes on '3 Bond Funds That Could Benefit from a Fall in Long-Term Yields.' The article explains, 'Here are three intermediate core-plus bond funds that have maintained above-average durations and stand to benefit more than their peers if yields fall. TCW MetWest Total Return Bond's (MWTRX) investment process touts a sensible balance between flexibility and discipline. This fund ... is benchmarked against the Bloomberg US Aggregate Bond Index, but its managers actively adjust duration relative to the index and have the flexibility to invest outside the benchmark.'"
Finally, another sidebar, "Federated Q3 Earnings," tells readers, "Federated Hermes reported Q3'24 earnings late last month. On the call, President & CEO J. Christopher Donahue comments, 'Turning now to fixed income, assets increased by about $4.9 billion in Q3 to a record high of $100.2 billion. Fixed income funds had Q3 net sales of $305 million, and fixed income separate accounts had net sales of $1.1 billion. Total fixed income net sales, therefore were $1.4 billion compared to $1.4 billion of net redemptions in the second quarter. Fixed income fund net sales were driven by about $515 million of combined net sales in total return bond fund, ETF and collective investment fund. Fixed income separate account net sales were driven by institutional multi-sector strategies and by the Core Plus SMA strategy.'"
