ICI's Reid on Bond Fund Flows
ICI's Brian Reid posted a recent "Viewpoint" entitled, "Bond Fund Flows: A Little Perspective on the Big Bond Market." He writes, "It's been a long two months for bond fund investors. The sharp run-up in interest rates since late April has caused many bond funds to experience their first losses in several years. Then, to rub salt into the wound, some commentators have placed the blame for rising bond yields and falling prices on fund investors themselves, pointing to the outflows from bond funds as evidence that fund investors were driving the markets. Trouble is, these outflows haven't been particularly large. ICI weekly estimates, which cover more than 95 percent of industry assets, show that outflows from bond mutual funds in June totaled a little more than $60 billion. Data from IndexUniverse show outflows from bond ETFs were about another $8 billion. With nearly $3.8 trillion invested in bond funds, these outflows amount to less than 2 percent of fund assets. Nor are they unprecedented: when interest rates have risen sharply in the past, bond funds have had outflows. The outflows that we have seen recently, when compared to total bond fund assets, have been in line with past periods of sharply rising interest rates.... As interest rates rise, we will continue to see outflows from bond funds. But it's important to look at the data and to understand flows in the full context of broader markets. Even with some outflows, we believe that investors will continue to want bond exposure. Among other things, demand for bonds will be driven by an aging population looking for diversification out of stocks and by investment vehicles such as target date funds, which allocate a certain portion of their investments to the fixed-income sector."
