The June issue of our Bond Fund Intelligence, which was sent to subscribers Monday morning, features the stories, "Active Bond Funds Beat Passive Says Eaton Vance," which quotes from a recent paper, and "ICI's 2024 Fact Book Reviews '23 Bond Fund Trends, Flows," which excerpts from the annual publication on fund statistics. BFI also recaps the latest Bond Fund News and includes our Crane BFI Indexes, which show that bond fund returns rose in May while yields were mixed. 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 too: Thanks again to those who attended our Money Fund Symposium last week in Pittsburgh! Attendees and Crane Data subscribers may access the conference binder and materials via our "Money Fund Symposium 2024 Download Center.")
BFI's "Active Bond Fund" article states, "Eaton Vance writes, 'Active Bond Managers Show Their Worth in a Turbulent Decade,' which tells us, 'The growth of passive investing fundamentally re-shaped the market for equity mutual funds.... Unsurprisingly, passive fixed-income investing has also surged in popularity in recent years. But a new study by Eaton Vance of fixed-income mutual funds paints a different picture. It shows that fixed-income active managers have handily outpaced the passive ones, based on analysis of 327 funds with $2.2 trillion in AUM in nine major fixed-income Morningstar categories.'"
The piece continues, "The paper explains, '[W]e found that actively managed fixed-income funds collectively beat the passive ones over the 3-, 5- and 10-year investment horizons studied. Active managers also prevailed in our analysis of 84 rolling three-year periods ended within the past ten years. In other words, active outperformance has been a consistent theme through time, not one just buoyed by recent outperformance. In this report, we ... explore some of the potential reasons why active fixed income has consistently delivered superior results.'"
Our second article states, "ICI recently published its '2024 Investment Company Fact Book,' which contains a review of the bond fund marketplace in 2023 and a wealth of statistics on bond funds. They write, 'Bond funds ... experienced a major shift in net sales, going from net outflows of $260 billion in 2022 to net inflows of $631 billion in 2023.... This reversal was primarily driven by continuing developments around inflation and interest rates. Following rampant inflation and soaring rates in 2022, inflation generally fell around the world throughout 2023 and short-term interest rates stabilized during the second half of the year.'"
It states: "The Fact Book continues, 'The trajectory of monetary policy is important because when interest rates rise, bond prices fall (and vice versa). As such, fixed-income investors stand to gain from any potential reduction in official interest rates. Additionally, like the experience with equity fund returns and flows, net flows to bond funds have historically been related to bond returns.'"
Our first News brief, "Returns Positive, Yields Mixed in May," states, "Bond fund returns rebounded in May, while yields flat to lower. Our BFI Total Index rose 1.00% over 1-month and is up 4.81% over 12 months. (Money funds rose 5.19% over 1-year as measured by our Crane 100 Index.) The BFI 100 increased 1.32% in May and 4.10% over 12 mos. Our BFI Conservative Ultra-Short Index was up 0.43% over 1-month and 5.73% for 1-year; Ultra-Shorts rose 0.59% and 6.36%. Short-Term returned 0.89% and 5.19%, and Intm-Term rose 1.57% in May and 2.54%. BFI's Long-Term Index was up 1.87% and 2.52%. High Yield rose 1.04% in May and 10.23% for 12 mos."
A second News brief, "Cavanal Hill Funds Merging <b:>`_," explains, "An SEC filing tells us, 'On April 25, 2024, the Board of Trustees of Cavanal Hill Funds voted to approve a reorganization in which the Cavanal Hill Moderate Duration Fund will be merged into the Cavanal Hill Limited Duration Fund, each a series of the Cavanal Hill Funds, a Massachusetts business trust.... The Trust intends to file a registration statement detailing the Reorganization on or about May 29, 2024.... It is expected that the Reorganization will occur on or about July 31, 2024.'"
Our next News brief comments, "The Wall Street Journal Says, 'Bond Investors Are Paying Up Again for Active Fund Managers.' The piece explains, 'A rocky stretch in the debt markets has American savers turning to Wall Street pros for help picking their bonds. About $105 billion has flowed into actively managed fixed-income funds on a net basis this year, compared with $74 billion for funds that choose investments by tracking an index, according to Morningstar Direct data as of April 30. That marks the first time flows into active bond funds topped those into passive funds during the period since 2021.'"
A BFI sidebar, "T-Bills Hot Says Barron's," says, "Barron's writes, 'Treasury Bills Are the Best Place to Park Your Cash. Just Ask Warren Buffett.' It tells us, 'Investors large and small are gravitating to Treasury bills, thanks to yields of 5.4%, tax benefits, and sleep-at-night security -- and there's no reason for them to stop. For a while now, Treasuries with maturities of a year or less, known as T-bills, have offered more yield than other U.S. debt offerings.... The 10-year Treasury, for instance, yields 4.45%, while the three-month yields 5.39%. Bills have also offered positive returns ... while long-term Treasuries are in the red.'"
Finally, another sidebar, "Southern Calif. King of Bonds" tells readers, "'You'll Never Trade Bonds in This Town Again' says an article in Barron's, which discusses the outsized role of Los Angeles in the bond fund market. It asks, 'What is it about Southern California and bonds, anyway? Over the past five decades, greater Los Angeles and Orange County -- better known for motion pictures and surfin' safaris -- have become an epicenter for buying and selling fixed-income securities. It's a serendipitous story, driven by outsize personalities, iconoclasm, and a 40-year decline in interest rates. Dominating the scene are tentpole companies like the Pacific Investment Management Co., or Pimco, and TCW (the old Trust Company of the West), as well as myriad offshoots from Michael Milken’s controversial junk bond operation at the long-defunct Drexel Burnham Lambert.'"
