The October issue of Crane Data's Bond Fund Intelligence, which was sent to subscribers Friday, features the story, "Worldwide Bond Funds Show Record Asset Gains in Q2," which reviews asset changes in the largest bond fund markets globally. BFI also includes the article, "EMFS Discusses Ultra-Short Bond Funds in Europe," which quotes panelists from a session on Ultra-Short Bond Funds at our recent European Money Fund Symposium. In addition, we recap the latest Bond Fund News, including the briefs: Yields Higher in September; Returns Down; Invesco on Investing in a Low Yield World; and more. BFI also includes our Crane BFI Indexes, averages and summaries of major bond fund categories. We excerpt from the October issue below. (Contact us if you'd like to see a copy of our latest Bond Fund Intelligence, which is $500 a year, and BFI XLS data spreadsheet, which is $1,000, and watch for our latest Bond Fund Portfolio Holdings data late next week.)

Our lead "Worldwide Bond Funds" story says, "The Investment Company Institute released its "Worldwide Regulated Open-​End Fund Assets and Flows Second Quarter 2017" late last month, and the latest data collection on mutual funds in other countries (as well as the U.​S.) shows that global bond fund assets rose by $426.5 billion, or 4.6%, in Q2'17, led by huge jumps in U.S. and Luxembourg bond funds. Worldwide bond fund assets have increased by $968.9 billion, or 11.0%, the past 12 months."

It continues, "The U.S., Luxembourg, Ireland, Germany and France showed the biggest asset increases in Q2'17. Over 12 months, the US, Luxembourg, Ireland, Brazil and China showed the largest increases. China and Brazil posted the largest declines in the past quarter, while Japan and The Netherlands were among the only losers the past year."

ICI's release says, "On a US dollar-denominated basis ... bond fund assets increased by 4.6 percent to $9.78 trillion in the second quarter. Balanced/mixed fund assets increased by 4.8% to $5.93 trillion in the second quarter, while money market fund assets increased by 3.4 percent globally to $5.33 trillion."

They write, "At the end of the second quarter of 2017, 43 percent of worldwide regulated open-end fund assets were held in equity funds. The asset share of bond funds was 22 percent and the asset share of balanced/mixed funds was 13 percent. Money market fund assets represented 12 percent of the worldwide total.... Globally, bond funds posted an inflow of $219 billion in the second quarter of 2017, after recording an inflow of $270 billion in the first quarter."

Our second BFI piece says, "This month, Bond Fund Intelligence recaps a session from our 5th Annual European Money Fund Symposium, which took place late last month in Paris, France. The segment, "Ultra-Short Bond Funds and Separate Accounts," featured Neil Hutchison from J.P. Morgan Asset Management, Rob Sabatino from UBS Asset Management, and Thierry Darmon from Amundi. The three discussed positioning in the space just beyond money funds, regulations and the popularity of bond funds in Europe."

Crane said, "Tell us about the positioning of offerings. Where is the sweet spot?" Hutchison responded, "We share a lot of the same best practices as Global Liquidity, so we still have a focus on principal preservation. We still have a 'buy list' approach. But we sort of go longer and lower with respect to duration and credit risk as well. `So the sweet spot is to get ... 20 to 40 bps over liquidity funds."

He adds, "We can do this with minimal volatility. The strategy is such that half your duration, 20% to maybe 30% is triple-B investments. We also step out further in terms of final maturities ... 3 years is where we have to go to get these type of returns. So I suppose the key takeaway here ... is we go to 3 years as opposed to 2 years, which means we don't qualify for cash or cash equivalency, that's by design. We feel clearly the growth of the strategy has been adequate without that."

Sabatino says, "In our U.S. business ... it's mostly SMAs [separately managed accounts] once you leave money market space.... For ultra short and short duration clients, the trend we've seen for a number of years, with the low interest rate environment, has been lower credit quality and longer duration.... Obviously, in USD [we're] concerned about rising interest rates given flatness of the curve, and [we have] the ability to use floating rate notes. We continue to see the sweet spot being higher yields, more credit, longer duration." (Watch for more excerpts of this article later this month, or ask us to see the full issue of BFI.)

Our Bond Fund News includes a brief entitled, "Yields & Returns Dip in September." It says, "Both yields and returns were down across most of the Crane BFI Indexes last month. The BFI Total Index averaged a 1-month return of -0.11% and gained 1.91% over 12 months. The BFI 100 had a return of -0.11% in September and rose 2.36% over 1 year. The BFI Conservative Ultra-Short Index returned 0.11% and was up 1.24% over 1-year; the BFI Ultra-Short Index had a 1-month return of 0.14% and 1.53% for 12 mos. Our BFI Short-Term Index returned -0.01% and 1.49% for the month and past year. The BFI High Yield Index increased 0.60% in Sept. and is up 6.93% over 1 year.(See p. 6+ or BFI XLS for more returns.)"

The new issue also includes a News brief entitled, "Beware Floating Rates." It tells us, "A statement entitled, "Beware the Risks of Floating-Rate Funds" says, "High yields can blind income seekers to the dangers of these below-investments. Words are powerful, and for investors seeking income, the words 'floating rate' are particularly alluring these days. The Federal Reserve is likely to raise the interest rates again in December, and rates globally have risen sharply in just the past week."

Finally, the October issue of BFI includes the sidebar, "Bond Inflows Unstoppable." It says, "ICI's "Combined Estimated Long-Term Fund Flows and ETF Net Issuance" as of Oct. 13 tells us, "Bond funds had estimated inflows of $12.40 billion for the week, compared to estimated inflows of $6.69 billion during the previous week. Taxable bond funds saw estimated inflows of $12.13 billion, and municipal bond funds had estimated inflows of $263 million." Over the past 5 weeks through 10/4, bond funds and ETFs have seen almost $46.2 billion in inflows vs. $31.0 billion in inflows over the prior 5-weeks."

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