The June issue of Crane Data's Bond Fund Intelligence, which was sent out to subscribers Wednesday, features the lead story, "Bond Fund Expenses Hit Record Lows in '16 Says ICI," which reviews a recent study on fund expenses. BFI also includes the "profile" article, "Baird's Pierson & deGuzman Keeping Short-Term Simple," an interview with Warren Pierson and Sharon deGuzman, Portfolio Managers at Milwaukee-based Baird Advisors. In addition, we recap the latest Bond Fund News, including the briefs on mixed yields in May, inflows, new ETFs, and high-yield funds. 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 a study on fund expenses entitled, "Trends in the Expenses and Fees of Funds, 2016." It says, "On average, expense ratios for long-term mutual funds have declined substantially over the past 20 years. In 1996, equity mutual fund expense ratios averaged 1.04 percent, falling to 0.63 percent in 2016. Bond mutual fund expense ratios averaged 0.84 percent in 1996 compared with 0.51 percent in 2016. Hybrid mutual fund expense ratios averaged 0.95 percent in 1996, falling to 0.74 percent in 2016."
They explain, "The report shows average bond fund expense ratios declining from 0.84% in 1996 to 0.75% in 2001, 0.67% in 2006, 0.62% in 2011, and a record low of 0.51% in 2016. ICI's expense charts source Morningstar and Lipper." ICI writes on bond funds, "In 2016, the asset-weighted average expense ratio for bond mutual funds fell 3 basis points to 0.51 percent (Figure 1), marking the seventh straight year that the expense ratios of bond mutual funds have either remained unchanged or have fallen."
The update continues, "In total, from 2009 to 2016, the average expense ratio of bond mutual funds fell 20 percent (13 basis points). The 2016 decline in part reflected a shift in demand away from world bond markets toward the US bond market. In 2016, world bond mutual funds saw net outflows of $40 billion. In contrast, investment grade bond mutual funds, which invest primarily in high-quality corporate bonds issued by US firms, experienced $84 billion in net inflows."
Our latest profile says, "This month, Bond Fund Intelligence profiles Warren Pierson and Sharon deGuzman, both Managing Directors and Senior Portfolio Managers at Milwaukee-based Baird Advisors. Parent company R.W. Baird & Co., employee-owned and privately held, was a regional brokerage firm that has grown into a global financial services company. We discuss the firm's Short Term Bond Fund and Ultra-Short Bond Fund, as well a number of topics in the bond fund marketplace. Our Q&A follows."
BFI says, "Tell us about Baird." Pierson responds, "As an employee-owned firm, philosophically, we try to keep it elegantly simple. It's about focus and alignment. We really focus on doing great work for our clients. If we do great work for our clients, the clients are happy, the business does well, the Baird shareholders or the employees do well, so it's really just about aligning our interests with those of the clients.... We found that with that focus, the growth of the business tends to take care of itself."
BFI then asks, "How long have you been running bond funds? Pierson responds, "Our group came to Baird in early 2000 [but] our first career was at the old Firstar Bank (now US Bank).... I joined this group in 1993, 7 years before we came over to Baird. But Mary Ellen Stanek, our CIO, Charlie Groeschell, and Gary Elfe, director of research emeritus, our founding partners, have worked together for over 30 years. Deguzman: I joined the group in 1994, so a year after Warren. We were at Firstar until 2000, and then moved over to Baird."
BFI continues, "It's a consistent process across the risk spectrum.... Starting on the short-end of the yield curve would be our Ultra-Short. We're talking about a half year duration, and then segueing into our Short-Term Bond Fund which goes to a 1- to 3-year benchmark (just shy of a 2-year duration), now the Bloomberg Barclays 1-3 Year Government Credit Index. A little further out, we have our Intermediate product, which is a 1- to 10- year product (about a 4-year duration)."
It adds, "Then, moving to our full market funds, our Aggregate fund, goes to the Aggregate index.... All of these funds ... are investment grade. Our ultra-short we can do a little bit below investment grade, which is a 1% right now. Our Core Plus Fund, which tracks the Universal Index, also a 1- to 30-year index (5 and 3/4-year duration), can purchase up to 20% below investment grade."
Our Bond Fund News brief on "Yields Mixed; Returns Up in May" explains, "Returns rose across all of the Crane BFI Indexes last month, and yields moved lower for longer-term funds but higher for shorter-term averages. The BFI Total Index averaged a 1-month return of 0.69% and gained 3.26% over 12 months. The BFI 100 had a return of 0.58% in May and rose 3.94% over 1 year. The BFI Conservative Ultra-Short Index returned 0.13% and was up 1.14% over 1-year; the BFI Ultra-Short Index had a 1-month return of 0.13% and 1.50% for 12 mos. Our BFI Short-Term Index returned 0.24% and 2.28% for the month and past year. The BFI High Yield Index increased 0.70% in May and is up 10.21% over 1 year."
