The May issue of Crane Data's Bond Fund Intelligence, which was sent out to subscribers Friday, features the lead story, "ICI 2017 Fact Book Reviews Bond Fund Trends: Good Year," which reviews the bond fund-related portions from ICI's annual report on mutual funds. BFI also includes the "profile" article, "Guggenheim's Brown & Dorr on the Short Duration Sector," an interview with Steven Brown and Kris Dorr, Portfolio Managers of Guggenheim Enhanced Short Duration (GSY) and Guggenheim Limited Duration (GILHX), respectively. In addition, we recap the latest Bond Fund News, including the brief, "Yields Down; Returns Up in April." BFI also includes our Crane BFI Indexes, averages and summaries of major bond fund categories. We excerpt from the latest issue below. (Contact us if you'd like to see a copy of our latest Bond Fund Intelligence and BFI XLS data spreadsheet, and watch for our latest Bond Fund Portfolio Holdings "beta" product later this month.)
Our lead Bond Fund Intelligence story says, "The Investment Company Institute recently published its "2017 Investment Company Fact Book" which contains an update on the bond fund marketplace in 2016 and a wealth of statistics on bond mutual funds. ICI says, "Bond fund flows typically are correlated with the performance of bonds [see the chart on page 2] which, in turn, is largely driven by the US interest rate environment."
They explain, "In the first half of 2016, long-term interest rates declined about 80 basis points, likely reflecting weaker than expected economic activity and diminished prospects of tighter monetary policy. As economic activity picked up in the third quarter, long-term interest rates started to rise, then jumped after the US presidential election and continued to drift higher, ending the year at about 20 basis points more than at the beginning of 2016."
The story continues, "These developments created a seesaw pattern (up first, then down) in the total return on bonds for the year. Bond mutual funds had net inflows of $107 billion in 2016, a significant reversal from $25 billion in net outflows in 2015.... Demand for taxable bond mutual funds remained relatively strong throughout 2016, despite the Increase in long-term interest rates in the second half of the year."
Our "Guggenheim's Dorr & Brown" profile says, "This month, Bond Fund Intelligence speaks with Guggenheim Investments' Steven Brown and Kris Dorr, Portfolio Managers for Guggenheim Limited Duration Fund (GILHX) and Guggenheim Enhanced Short Duration ETF (GSY), respectively. We discuss issues in the ultra-short space, as well as Guggenheim's recent growth. Our Q&A follows."
BFI asks, "How long has Guggenheim been running short term products?" Dorr responds, "Guggenheim has been in the short term market for close to a decade. We began with BulletShares, which is a suite of targeted maturity corporate and high-yield corporate bond ETFs. Then we entered in the ultra-short market in 2011 with GSY, which was originally a Claymore fund. It was converted to an actively managed ETF and was re-named Guggenheim Enhanced Short Duration ETF. Limited Duration, a mutual fund, followed in December 2013."
She continues, "Regarding my history, I spent most of my career in the short duration space, beginning with institutional and retail money market funds and ultimately focusing on separately managed accounts in the 1-to-3, 1-to-5 year space. I joined Guggenheim in 2011 specifically to work on GSY and also to focus on short duration and cash management."
Brown tells us, "I joined Guggenheim in 2010.... There are four distinct investment teams within Guggenheim, that's how we've broken down the investment management function. I originally started on the team that effectively does the credit underwriting and trading of the individual securities, then I moved into portfolio management a few years later and been working on GSY since 2012. [I've been] listed on the Limited Duration prospectus from the fund’s inception in December 2013."
BFI then says, "Tell us about the short-term lineup. Brown responds, "If you think about the ultra-short, we have our ETF, GSY. We also have a number of internally managed cash management vehicles that are not publically marketed that I also work on. GSY's benchmark is the T-bill index, so we're generally trying to keep about a 0.25 year duration or so in the portfolio. Then we can get into portfolio construction and positioning. But suffice to say, we are firmly in the ultra-short category and we take limited credit risk in that product."
Our Bond Fund News brief on "Yields Down; Returns Up" explains, "Returns rose across all of the Crane BFI Indexes last month, and yields moved lower for all but our ultra-short averages. The BFI Total Index averaged a 1-month return of 0.61% and gained 2.67% over 12 months. The BFI 100 had a return of 0.64% in April and rose 3.30% over 1 year. The BFI Conservative Ultra-Short Index returned 0.11% and was up 1.06% over 1-year; the BFI Ultra-Short Index had a 1-month return of 0.11% and 1.54% for 12 mos. Our BFI Short-Term Index returned 0.30% and 2.03% for the month and past year. The BFI High Yield Index increased 0.84% in April but is up 10.05% over 1 year."
