The August issue of our Bond Fund Intelligence, which was sent to subscribers Thursday morning, features the stories, "Maturity Main Risk of Bond Funds Says Journal Study," which covers a recent study from Wall Street Journal; and "EFAMA Fact Book Reviews European Bond Funds in '24," which looks at annual statistics compilation on European funds. BFI also recaps the latest Bond Fund News and includes our Crane BFI Indexes, which show that bond fund returns were flat to mixed 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 lead article states, "The Wall Street Journal writes, 'Forget About Bond Ratings. This Is the Biggest Fixed-Income Risk.' They comment, 'Many investors think the riskiness of their bond portfolio is in the default risk or the country of origin of their holdings. But, in fact, the main source of risk in your bond portfolio is the length of time to maturity of the bonds or bond funds.'"
It continues, "The piece explains, 'To study this issue, my research assistants (Huzaifah Shafique and Arnav Pradhan) and I pulled all U.S. dollar-denominated fixed-income mutual-fund data going back 40 years. We then took the average monthly returns across the following fixed-income groupings: short-term Treasury funds (average maturity of six months), long-term Treasury funds (average maturity of 20 years), intermediate Treasury funds (average maturity of six years), world debt funds (average maturity of six years), high-yield corporate debt (average maturity of five years) and investment-grade corporate debt (average maturity of 10 years).'"
Our "EFAMA" article states, "EFAMA, the European Fund and Asset Management Association, published its annual 'Fact Book' recently, which includes statistics on European funds and a section on European bond funds. They write, 'Bond UCITS experienced a strong year in 2024, attracting EUR 275 bn in net inflows -- the third-highest of the decade -- and almost double that of 2023 (EUR 142 bn). Net assets also rose -- to EUR 3.6 tn -- a 14% asset growth compared to end 2023. Bond fund flows are heavily influenced by interest rate evolutions and investor anticipations of future rates; 2024 was no different. The ECB cut interest rates four times during 2024, and signaled that they could be cut even further in 2025. Other major central banks, such as the Federal Reserve and the BoE, also lowered interest rates during 2024.'"
We write, "The Fact Book continues, 'Price effects generally have a smaller impact on overall asset growth in bond funds compared to equity funds, as bond prices tend to be less volatile than stock prices. In 2024, market appreciation contributed approximately 5% to the 14% overall asset growth, with net sales making up nearly 9%. In some years, however, there are larger price effects; in 2022, most of the 15% net asset decline was due to an 11% drop in bond values and only 4% to net outflows.'"
Our first News brief, "Returns Mixed, Yields Lower in July," says, "Bond fund returns were flat in July after being higher in June. Our BFI Total Index rose 0.02% over 1-month and rose 4.09% over 12 months. (Money funds rose 4.49% over 1-year as measured by our Crane 100 Index.) The BFI 100 decreased 0.05% in July and rose 4.53% over 12 mos. Our BFI Conservative Ultra-Short Index was up 0.32% over 1-month and 4.82% for 1-year; Ultra-Shorts rose 0.31% and 5.13%. Short-Term returned 0.12% and 5.36%, and Intm-Term fell 0.13% in July and 3.88% over 12 mos. BFI's Long-Term Index was down 0.16% but up 3.59%. High Yield returned 0.41% in July and 7.00% over 12 months."
A second News brief, "Barron's Says, 'Bond Funds Are Supposed to Be Better Than Indexes. Not This Year.' They write, 'Actively managed bond funds are having a terrible year.... Investors have more than $4 trillion invested in active bond funds <b:>`_ — which, historically, have a far better chance of delivering market-beating returns than active stock-picking funds.... Recently however, active bond funds have been taking it on the chin. Just 31% of active bond funds outperformed comparable index funds for the 12 months ended June 30, according to a report released Tuesday by Morningstar.'"
Our next News brief, "Morningstar on the 'Top-Performing Corporate Bond Funds' They tell us, 'Corporate bond exchange-traded funds can be an easy and inexpensive way for investors to access a broad, diversified portfolio of bonds that would be hard for individual investors to assemble.' The piece mentions: iShares 5-10 Year Investment Grade Corporate Bond ETF (IGIB), SPDR Portfolio Intermediate Term Corporate Bond ETF (SPIB), Vanguard Intermediate-Term Corporate Bond Index Fund (VCIT) and Vanguard Intermediate-Term Investment Grade Fund (VFIDX). MStar also writes on 'The 14 Top Vanguard Bond ETFs to Buy in 2025.'"
A BFI sidebar, "Rethink Bond Fund Strategy," tells us, "Barron's writes 'Rates Are Falling. It's Time to Rethink Your Bond Strategy.' They explain, 'The yield curve, a line graph showing the yields of bonds short- to long-term, got a lot steeper last Friday after a weak jobs report showed the economy is cooling.... With rates coming down as the yield curve steepens, extending maturities makes sense—but not too far, say strategists. Many recommend bonds maturing in five to seven years. In Treasuries, that's where you get most of the yield but avoid the volatility of longer-term bonds. 'Investors aren't really being compensated for lengthening duration too much,' [SSIM's Michael] Arone says. His firm's SPDR Portfolio Intermediate Term Treasury ETF yields 4%.'"
Finally, another sidebar, "Barron's on Active BFs," says, "Barron's tells us 'Why These Active Bond Funds Are Worth a Premium.' They comment, 'While low-cost index funds like Vanguard Total Bond Market are still reliable holdings, it's a good time to consider active funds with flexible mandates to play offense and defense.... 'Bonds are a great opportunity right now,' says Campe Goodman, manager of the Hartford Strategic Income ETF.'"
