The June issue of our Bond Fund Intelligence, which will be sent to subscribers Wednesday morning, features the stories, "Barron's Profiles Vanguard Fixed-Income Head Devereux," which reviews a piece on one of the largest bond fund manager's outlook on the market, and "ICI's 2023 Fact Book Reviews '22 Bond Fund Trends, Flows," which excerpts from the Institute's annual trends compilation. BFI also recaps the latest Bond Fund News and includes our Crane BFI Indexes, which show that bond fund returns fell in May while yields inched 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.) (Reminder: Tickets are still available for our big Money Fund Symposium show, which will take place next week, June 21-23, 2023 in Atlanta, Ga.)
Our lead article states, "Barron's features, 'Bonds Are Back. Where Vanguard's Bond Boss Sees Value Now." They write, 'After a lousy year for bonds in 2022, the outlook is better. So much better that Sara Devereux, global head of the fixed-income group at Vanguard, has taken to sporting a button around the office declaring, 'Bonds Are Back.'" She tells the magazine, 'I haven't seen this kind of opportunity in a long time, after a decade of yields at the zero lower bound.'" ` It continues, "The piece explains, 'Vanguard is the world's second-largest asset manager, with $7.7 trillion in assets under management. In bonds it is best known for index funds. But it is also one of the biggest providers of U.S. active bond funds, with $890 billion in assets, and Devereux is helping lead the charge in active management.'"
Our "Fact Book" piece states: "The ICI recently published its '2023 Investment Company Fact Book,' which contains a review of the bond fund marketplace in 2022 and a wealth of statistics on bond funds. They write, 'Bond funds ... experienced a major shift in net sales, going from net inflows of $1.2 trillion in 2021 to net outflows of $261 billion in 2022.... This reversal was primarily driven by developments in inflation and interest rates. Inflation across the globe rose considerably during 2022 -- reaching 40-year highs in many countries.... In response, central banks tightened monetary policy by engaging in earlier and steeper-than-expected interest rate hikes.'"
ICI continues, 'The cycle of tightening monetary policy among these developed economies is important because when interest rates rise, bond prices fall. This caused the value of bonds in these jurisdictions to decrease, which led to capital losses on bond funds. Like the experience with equity fund returns and flows, net flows to bond funds have historically been related to bond returns (see Figure 3.5).'"
Our first News brief, "Returns Move Lower, Yields Up in May," says, "Bond fund returns fell while yields were mostly higher last month. Our BFI Total Index fell 0.66% over 1-month and is down 0.42% over 12 months. The BFI 100 fell 0.80% in May and lost 1.00% over 1-year. Our BFI Conservative Ultra-Short Index was up 0.34% over 1-month and is up 3.01% for 1-year; Ultra-Shorts rose 0.22% and are up 2.49% over 12 mos. Short-Term fell 0.34% and rose 0.32%, and Intm-Term fell 1.02% and -2.05% over 1-year. BFI's Long-Term Index fell 1.37% and -2.68%. High Yield fell 0.74% in May but rose 0.68% over 1-year.
A second News brief, "Morningstar on '6 Top-Performing Core Bond Funds,' says, 'In recent years, becoming a top-performing bond fund has required weathering some of the biggest extremes in bond market history.... For bond investors, 2022 was a grim year.... The bond market as measured by the Morningstar US Core Bond Index lost 12.9%, while funds in the intermediate-term core bond Morningstar Category lost 13.4% on average. So far, 2023 has been a smoother ride for bond investors, as core bonds have on average returned 2.4%, compared with a 2.2% gain for the Morningstar Core Bond Index. But for the past 12 months, bond investors have still been nursing losses. Core bond funds are down 1.6% for the 12-month trailing period ending June 8.'"
Our next News brief, "Forbes Advisors on the 'Best Total Bond Market Index Funds Of 2023,' tells readers, 'You know you should be investing in fixed income, but the bond market can be a challenging puzzle for many people. Choosing a total market bond index fund is an easy way to answer this riddle. When you own shares in a total bond market fund, you get exposure to the entire bond market. You're investing in U.S. Treasury bonds, agency bonds, corporate bonds and a variety of other fixed-income investments -- and the best options charge rock-bottom fees.' The piece mentions: TIAA-CREF Bond Index Advisor (TBIAX), Northern Bond Index (NOBOX), Vanguard Total Bond Market Index (VBTLX), Schwab U.S. Aggregate Bond Index Fund (SWAGX), Fidelity Sustainability Bond Index Fund (FNDSX), Fidelity U.S. Bond Index Fund (FXNAX), Fidelity Flex US Bond Index Fund (FIBUX)."
Another brief, "VettaFi's Advisor Perspectives Posts, 'Gundlach: Buy Bonds, Not Stocks,' quotes VettaFi, 'There is plenty of opportunity in the bond market, particularly in low-risk Treasury bonds and in the mortgage markets, according to Jeffrey Gundlach.... 'Bonds are absolutely cheap relative to stocks.' Gundlach spoke to investors via a webcast, titled 'Dust in the Crevices,' and the focus was on his flagship total-return fund (DBLTX).'"
A BFI sidebar, "SEC's Gensler on Open-End," says, "Securities & Exchange Commission Chair Gary Gensler spoke last month before the '2023 ICI Leadership Summit.' His talk, 'Bear in the Woods,' tells us, 'There is a saying when you're in the woods. 'You don't have to outrun the bear; you just have to outrun one of your fellow campers.' [T]his helps explain why investors might try to cash out of investments before the proverbial bear -- of dilution and illiquidity -- catches them.'"
Finally, another sidebar, "BlackRock Launches BINC," comments, "A release entitled, 'BlackRock Expands Access to Award-Winning Alpha-Seeking Expertise With Latest Active ETFs' tells us, 'BlackRock expanded access to its award-winning investment platform with the launch of two active ETFs managed by Rick Rieder and Tony DeSpirito. This milestone provides clients with the best of BlackRock's investment insights in a liquid, transparent, and tax-efficient ETF wrapper.'"
