The April issue of Crane Data's Bond Fund Intelligence, which was sent out to subscribers Friday morning, features the lead story, "Worldwide Bond Fund Assets Break Over $10 Trillion," which reviews the latest statistics on bond funds outside the U.S., and the profile, "BFS Highlights: Schneider, Martucci on Big Shortening," which reviews the keynote and some other sessions from our recent Bond Fund Symposium conference. Also, we recap the latest Bond Fund News, including the continued move higher in yields and a host of filings for new fixed-income ETFs. BFI also includes our Crane BFI Indexes, which showed increases in March in most sectors except high-yield funds. We excerpt from the latest BFI below. (Contact us if you'd like to see a copy of our latest Bond Fund Intelligence and BFI XLS, and watch for our next Bond Fund Portfolio Holdings data set next Friday.
Our lead "Worldwide" BFI story says, "The Investment Company Institute released its "Worldwide Regulated Open-End Fund Assets and Flows Fourth Quarter 2017" late last month, and the latest data collection on mutual funds in other countries (as well as the U.S.) shows that global bond fund assets rose by $196.9 billion, or 1.9%, in Q4'17, led by jumps in bond funds domiciled in the U.S., Luxembourg and Ireland. Worldwide bond fund assets broke over the $10 trillion level for the first time ever to total $10.373 billion, and have increased by $1.163 trillion, or 12.6%, the past 12 months."
It continues, "The U.S., Luxembourg, Ireland, China Sweden and the U.K. showed the biggest asset increases in Q4'17. Over 12 months, the US, Luxembourg, Ireland, Brazil, Canada, China and France showed the largest increases. Brazil and the Netherlands posted the largest declines in the past quarter, while Japan, Australia and Korea were among the only losers the past year."
ICI's release says, "On a US dollar–denominated basis ... bond fund assets increased by 1.9 percent to $10.37 trillion in the fourth quarter. Balanced/mixed fund assets increased by 3.0 percent to $6.42 trillion in the fourth quarter, while money market fund assets increased by 3.1 percent globally to $5.90 trillion."
Our BFS Highlights piece says, "This month, BFI recaps and excerpts from our recent Bond Fund Symposium conference, which took place in Los Angeles March 22-23 and focused on the ultra-short bond fund market. We review our 'Keynote Discussion: Ultra-Shorts vs. SMAs,' which featured PIMCO's Jerome Schneider and J.P. Morgan Asset Management's Dave Martucci, as well as several other sessions. The keynote discussed a number of issues impacting ultra-short bond funds and separately managed accounts, and forecast that the next wave of growth for ultra-shorts is likely to be 'outside-in' (from longer-term bonds) instead of 'inside-out.'" (See too our April 3 News, "More Bond Fund Symposium Highlights: Schneider and Martucci Keynote.")
Schneider commented, "This is clearly a growing segment of the marketplace. [T]he purpose of these discussions for the past year or two has focus[ed] on offering products, offering solutions to clients that help fill various risk factors.... The evolution of Pete's franchise is simply an acknowledgement that investors are moving around in there thinking more about ... ways to manage capital."
He continued, "PIMCO's presence in the front-end market has been pervasive for almost 40 years. We launched our first ultrashort bond fund 30 years ago. The PIMCO Short Term fund is almost 31 years old now.... PIMCO is really focused on active management, that's no secret.... Our forte has really been managing risk attributes ... and balanc[ing] income with capital preservation. Our strategies include mutual funds and separate accounts. But ... over the past few years we've had an emerging ETF platform that's really been a focus of growth in terms of the $200 plus billion we manage on the front end."
A Bond Fund News brief entitled, "Yields Continue Higher in March," explains, "All bond fund categories showed increases in yields and most showed positive returns last month. Yields rose for all types of funds in March. The BFI Total Index averaged a 1-month return of 0.26% and the 12-month gain rose to 2.06%. The BFI 100 returned 0.29% in March and 1.95% over 1 year. The BFI Conservative Ultra-Short Index returned 0.08% over 1 month and 1.24% over 1-year; the BFI Ultra-Short Index averaged 0.11% in March and 1.10% over 12 mos. Our BFI Short-Term Index returned 0.14% and 0.92%, and our BFI Intm-Term Index returned 0.43% and 1.43% for the month and year. The BFI Long-Term Index returned 0.54% in March and 2.40% for 1 year; the BFI High Yield Index returned -0.37% in March and 3.43% for 1 year."
Another brief, entitled, "PGIM Launches Ultra-Short Bond ETF," mentions a press release entitled, "PGIM Investments enters the active ETF market with fixed income strategy." It says, "PGIM Investments has entered the exchange traded fund space with the launch of PGIM Ultra Short Bond ETF (PULS). The fund is a diversified, fixed income, actively managed ETF that aims to deliver current income and capital appreciation with a focus on managing risk."
Yet another brief comments on the Reuters article, "Fund industry defends bond ETFs to U.S. regulators." It tells us, "A fund industry trade group representative on Monday disputed the idea that bond exchange-traded funds (ETFs) might fail to hold up under stress, telling U.S. securities regulators he knows of no convincing evidence to suggest such funds' liquidity is a problem. The remarks by Investment Company Institute Chief Economist Sean Collins come as some top investors question the resiliency of debt funds, which are often cheap to trade but hold corporate bonds that are difficult to buy and sell, even in normal markets."
A sidebar entitled, "BIS on Risks of Passive," explains, "MarketWatch writes, "Are investors getting more risk with passive bond funds than they bargained for? BIS asks." They ask, "Are popular exchange-traded funds and other passive mutual funds designed to track benchmark bond indexes inadvertently putting investors at risk? The Bank for International Settlements makes the argument that so-called passively run bond funds, which track an index, may be exposing investors in those funds to more debt than they are aware of. The BIS says that the issue lies with indexes that these funds attempt to replicate."
They quote the BIS report, "As passive bond funds mechanically replicate the index weights in their portfolios, their growth will generate demand for the debt of the larger, and potentially more leveraged, issuers. From a financial stability perspective, there is a concern that this can act procyclically and encourage aggregate leverage."
