The August issue of our Bond Fund Intelligence, which was sent to subscribers Wednesday morning, features the stories, "WSJ Says Bond Funds Draw Record Amounts (or ETFs Do)," which quotes from coverage of recent bond ETF inflows, and "Income Matters Interviews Columbia's Gene Tannuzzo," which excerpts from a recent bond fund manager interview. BFI also recaps the latest Bond Fund News and includes our Crane BFI Indexes, which show that bond fund returns rose in July while yields were 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.)
BFI's "WSJ" article states, "The Wall Street Journal recently wrote, 'Bond Funds Draw in Record Amounts,' which tells us, 'The stock market may be roaring, but 2024 has been Wall Street's year of the bond fund. Bonds are paying the highest yields in a generation and interest rates are poised to come down. Meanwhile, a record number of retirees are looking to cut risk in their portfolios. That combination has investors pouring money into both indexed and actively managed funds. Wall Street is seeing dollar signs.'"
The piece says, "The article continues, 'U.S.-listed fixed-income exchange-traded funds have taken in nearly $150 billion through late July, a record through this point in a year. When looking at mutual funds and ETFs together, taxable bond funds were responsible for nearly 90% of net U.S. fund inflows in the first half, according to Morningstar. After more than a decade of paltry bond yields, and just two years removed from the worst year for bonds on record, the combination of high rates and falling inflation offers investors a rare opportunity for investment income. Rick Rieder, who oversees more than $2 trillion as BlackRock's chief investment officer for fixed income, is calling the current period 'the golden age of fixed income.'"
Our second article states, "The website Income Matters Today, run by former Barron's reporter Lawrence Strauss, recently interviewed Columbia Threadneedle Investments Senior Portfolio Manager and Global Head of Fixed Income Gene Tannuzzo. The piece, entitled, 'Finding Avenues in the Bond Market,' quotes Tannuzzo, 'I think it's true that credit is expensive, if we look at the risk premium or the additional yield that you get for corporate bonds above Treasuries. So when we look at ... the investment grade, the high grade corporate bond market, right now you get about 0.9% [or] ... 90 basis points more yield than similar maturity Treasuries. That's [an] expensive level.... But you can also say it reflects an investment community that is comfortable with the current state of the economy and corporate fundamentals.'"
It states, "He continues, 'So I think there's information value in looking at, the pricing or the valuations in credit markets. And what the market is telling you is we've been through a pandemic, but that feels like a long time ago.... America is generally in a strong fundamental position.... But the problem with really, really good fundamentals is that you don't get paid a lot of extra yield, a lot of extra juice, for that. So that that's true from a risk premium perspective.'"
Our first News brief, "Returns Up Again, Yields Lower in July," explains, "Bond fund returns were higher yet again in July, while yields continued lower. Our BFI Total Index rose 1.52% over 1-month and is up 6.36% over 12 months. (Money funds rose 5.27% over 1-year as measured by our Crane 100 Index.) The BFI 100 increased 1.87% in July and 6.37% over 12 mos. Our BFI Conservative Ultra-Short Index was up 0.63% over 1-month and 5.73% for 1-year; Ultra-Shorts rose 0.85% and 6.22%. Short-Term returned 1.28% and 6.67%, and Intm-Term rose 2.21% in July and 5.91%. BFI's Long-Term Index was up 2.36% and 5.80%. High Yield rose 1.40% in July and 9.77% for 12 mos."
A second News brief, "Bloomberg Tells Us, 'Bond Kings Draw Record $44 Billion to Actively Managed ETFs.' It says, 'The moment bond powerhouses have been waiting for is coming into view, and the payoff is record sums of client cash flowing into actively managed ETFs. With the Federal Reserve poised to cut rates as soon as September, investors poured $245 billion overall into active and index mutual funds and exchange-traded funds in the first half of the year, according to Morningstar Direct.'"
Our next News brief comments, "Vanguard's 'Active Fixed Income Perspectives Q3 2024: The High Road,' explains, 'In recent months, the worst fears for bonds—a reacceleration in inflation and likely higher interest rates—have faded. We believe we are approaching a turning point in the economic cycle, which historically has been a good environment for higher-quality bonds. Real ... interest rates remain near recent highs.'"
A BFI sidebar, "Schwab Launching US ETF," says, "Charles Schwab recently published a release titled, 'Schwab to Launch the Schwab Ultra-Short Income ETF.' it states, 'Schwab Asset Management, the asset management arm of The Charles Schwab Corporation, announced the launch of the Schwab Ultra-Short Income ETF (SCUS), its first actively managed fixed income ETF. The first day of trading is expected to be on or about August 13.'"
Finally, another sidebar, "MStar on 5 Bond Funds" tells readers, "Morningstar's article, 'Five Bond Funds That Look Outside the Box for Yield,' says, 'With interest rates at their highest levels in years and the Federal Reserve gearing up for its first interest rate cut, many investors are still looking for ways to add yield to their portfolios. While bond funds pay out income by nature, some offer more than others. Higher yields generally come with greater risks, but some funds that Morningstar analysts have awarded Medalist Ratings rank highest at generating income.'"
