The February issue of our Bond Fund Intelligence, which was sent to subscribers Friday morning, features the stories, "Debate Over Bond Funds vs. Cash Continues, Heats Up," which features recent stories pushing bond funds over cash, and "Federated Hermes' Ostrowski on Volatility & Vigilantes," which excerpts from a recent Insight piece. BFI also recaps the latest Bond Fund News and includes our Crane BFI Indexes, which show that bond fund returns rebounding in January while yields were slightly lower. 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, and join us for our upcoming Bond Fund Symposium, which is March 27-28 in Newport Beach, Calif.)
BFI's "Debate Over Bond Funds" article states, "Strategists and asset managers continue to urge investors to move from cash into bonds, though money funds (barely) outperformed bond funds in 2024. Reuters writes, 'Third Time Lucky for 'Year of the Bond' Call?' The article says, 'After two years of significant underperformance by bonds, investors may have a hard time swallowing claims that 2025 will be the 'year of the bond.' But there are compelling reasons to believe this will be a case of third time lucky.'"
It continues, "Barron's echoes the theme in, 'These Bond Funds Are Better Than Cash. It's Time to Go Longer.' Their piece states, 'Many income investors have gravitated to cash these past few years, given the juicy yields at the front end of the yield curve. The yield curve was inverted until recently, and it made sense for investors to park money in shorter-dated products, including money-market funds.'"
Our "Profile" article states, "Federated Hermes' Robert Ostrowski writes on 'Volatility, velocity and vigilantes.' He comments, 'Volatility is how markets express uncertainty, and 2024 offered its share of ups and downs. After a choppy start to the year, and a rally through much of Q2 and Q3, the Bloomberg US Aggregate ultimately gave up a portion of year-to-date (YTD) return in Q4, while remaining modestly positive for the year at 1.25%. Growing investor expectations of a Trump win fueled a risk rally in the weeks before the election (higher rates/tighter spreads), defining the quarter and creating the negative total returns.'"
It continues, "He explains, 'It wasn't quite 2016 all over again, but the net result was very similar. During this past quarter, the 10-yr Treasury yield moved up 77 basis points, while in Q4 2016, the 10-yr Treasury yield moved up 84 bps, albeit all coming after the election surprise. Also similar was a steepening of the yield curve which occurred in both post-election environments, a likely result of some of the increased market uncertainty over future policy effects.'"
Our first News brief, "Returns Rebound, Yields Lower in Jan. Bond fund returns were higher in January after falling in December. Our BFI Total Index rose 0.68% over 1-month and rose just 4.34% over 12 months. (Money funds rose 4.99% over 1-year as measured by our Crane 100 Index.) The BFI 100 increased 0.73% in Jan. and rose 4.10% over 12 mos. Our BFI Conservative Ultra-Short Index was up 0.42% over 1-month and 5.40% for 1-year; Ultra-Shorts rose 0.45% and 5.63%. Short-Term returned 0.61% and 4.93%, and Intm-Term rose 0.72% in Jan. and rose 3.06%. BFI's Long-Term Index was up 0.66% and up 2.38%. High Yield returned 1.07% in Jan. and 8.17% over 12 mos."
A second News brief, "Bloomberg's, 'Pimco, Dodge & Cox Lead Revival in Actively Managed Bond Funds.' explains, 'US bond funds actively managed by industry heavyweights like Pacific Investment Management Co. attracted the most new investment last year as money returned after a two-year dry spell. A majority of the top 10 bond mutual funds ... were active ones attracting a combined $74 billion in assets, according to data compiled by Morningstar Direct. The cohort outpaced their passive counterparts. Among the six active funds receiving the most flows were the Pimco Income Fund, Dodge & Cox Income Fund, and Capital Group’s The Bond Fund of America.'"
Our next News brief, "New Vanguard Ultra-Short T-Bill ETFs. Their press release tells us, 'Vanguard launched Vanguard Ultra-Short Treasury ETF (VGUS) and Vanguard 0-3 Month Treasury Bill ETF (VBIL), two fixed income index ETFs. The pair of ETFs will be managed by Vanguard Fixed Income Group veteran, Josh Barrickman.' The Independent Vanguard Adviser newsletter comments, 'You can already buy SPDR Bloomberg 1-3 Month T-Bill ETF (BIL) or iShares 0-3 Month Treasury Bond ETF (SGOV) — both are around $30 billion funds <b:>`_…. Also, there's the `U.S. Treasury 3 Month Bill ETF (TBIL) ... and WisdomTree's Floating Rate Treasury ETF (USFR).'"
A BFI sidebar, "Vanguard Cuts Expenses," states, "A press release, 'Vanguard Announces Largest Ever Expense Ratio Reduction,' says, 'Vanguard … announced historic expense ratio reductions to one hundred sixty-eight mutual fund and exchange-traded share classes across eighty-seven funds…. Salim Ramji, Vanguard's CEO says, 'We're proud to build on Vanguard's legacy of lowering the costs of investing ... by announcing our largest ever set of expense ratio reductions. Lower costs enable investors to keep more of their returns, and those savings compound over time.'"
Finally, another sidebar, "JPM on Ultra-Shorts," says, "J.P. Morgan writes in a recent, 'Mid-Week US Short Duration Update,' 'In 2024, short-duration bond funds experienced a positive year of inflows, with AUMs higher by $37bn to surpass $825bn, marking a 5% year-over-year rise. This was the first year of net inflows since 2021.... Last year's inflows into short-duration funds closely mirrored bond performance, which partly reflected investors' expectations regarding Fed rate policy. In fact, nearly 90% of the inflows occurred between May and September, a period when monthly returns were at its peak for the year.... Conversely, during months with negative returns—specifically February, April, and October—outflows were also observed.'"
