The February issue of Crane Data's Bond Fund Intelligence, which will be sent out to subscribers Wednesday, features the lead story, "ICI Says Bond Fund Flows Remain Strong, Despite Rates," which reviews recent comments from ICI's new Chief Economist Sean Collins, and the profile, "JPMAM's McNerny, Crane Discuss Ultra-Shorts at MFU," which excepts highlights from the segment on Bond Funds at our recent Money Fund University. Also, we recap the latest Bond Fund News, including losses in January for most funds and the latest on the jump in rates. BFI also includes our Crane BFI Indexes, which showed decreases in January in most sectors except ultra-short, global and high yield. We excerpt from the latest BFI below. (Watch for more excerpts from our MFU profile later this month on www.cranedata.com, and contact us if you'd like to see a copy of our latest Bond Fund Intelligence and BFI XLS.)

Our lead Bond Fund Intelligence story says, "The Investment Company Institute published a video with Chief Economist Sean Collins late last week entitled, "Bond Fund Flows Remain Strong Despite Rising Interest Rates." When asked about the rising rate environment, Collins comments, "It looks like this time, it's for real. The Fed has raised short-term interest rates 1.5% since September of 2016 and, judging from Fed fund's future markets, it looks like they'll probably go about another 1.5% in the rest of 2018. That's likely to put upward pressure on longer-term interest rates, and downward pressure on bond prices -- and, in return, downward pressure on bond fund returns."

He explains, "Historically, what we've seen as interest rates rise, investors in bond funds tend to respond very modestly, pulling some money out -- but it's very modest. What we saw in 2017 was a little bit of a disconnect. We saw a very sharp rise in the stock market -- about 20%. Bond returns were about flat. And you would think that, in that environment, people wouldn't be putting money into the bond funds -- but just the reverse happened. We saw very strong inflows into bond funds, and that pretty much continued throughout the year."

BFI's McNerny and Crane Profile says, "Last month, Crane Data's Money Fund University conference included a segment entitled, "Ultra-Short Bond Funds & SMAs," which featured James McNerny, MD & Portfolio Manager at J.P. Morgan Asset Management, as well as Crane Data's Peter Crane. The two discussed the basics of the bond fund marketplace, recent trends in the conservative ultra-short bond fund space, and the status of the short-term separately managed account market. We excerpt some of their comments below."

JP Morgan's McNerny, who helps run almost $60 billion in "Managed Reserves" assets, tells us, "I've been in the industry now for 17 years.... [After the crisis, Managed Reserves] was a fledgling business. We one portfolio manager at the time, David Martucci, and we had few billion in assets. In the last seven years, we've grown the product to over 120 SMA accounts, two mutual funds, we just launched an ETF, and our total assets are just shy of $70 billion."

When asked how he learned the business, McNerny answered, "There's no better way to learn [than from working for experts].... Nobody really teaches ... about fixed income. It [takes] three to five years for you to completely wrap your head around everything you need to know about this job.... So I would just encourage anyone who is new and starting out to really push through and don't get frustrated. There are tons of acronyms and different ways to explain the same thing." He mentions "Bloomberg, The Wall Street Journal, The Financial Times, and economists" as information sources.

A Bond Fund News brief entitled, "Returns Down For Most in January," explains, "Most bond fund categories showed losses except Ultra-Short, Global and High Yield. Yields rose for all but High Yield funds last month. The BFI Total Index averaged a 1-month return of -0.35% and the 12-month gain fell to 3.15%. The BFI 100 returned -0.44% in Jan. and 3.12% over 1 year. The BFI Conservative Ultra-Short Index returned 0.11% over 1 month and 1.31% over 1-year; the BFI Ultra-Short Index averaged 0.06% in Jan. and 1.24% over 12 mos. Our BFI Short-Term Index returned -0.15% and 1.36%, and our BFI Intm-Term Index returned -0.85% and 2.42% for the month and year. The BFI High Yield Index rose 0.60% in Jan. and 5.70% for 1 year."

Another brief, entitled, "Barron's Comments, 'As Rates Jolt Market, Bond Strategy Finally Shines,' says, "Go-anywhere bond funds didn't go anywhere for several years. But with interest-rate fears roiling the markets, they've starting to look a lot better. As of Thursday, prominent unconstrained funds were beating the Bloomberg Barclay's Aggregate Bond handily. While the index was down 1.15% for the year, BlackRock's $32.8-billion Strategic Income Opportunities Portfolio (BASIX) was up a whopping 1.35%. The $3.4 billion Pimco Unconstrained Bond Fund (PUBAX) was up .36% year to date. And former Pimco bond guru Bill Gross, now at Janus Henderson, has steered his $2.2 Global Unconstrained Bond Fund (JUCAX) to a .56% gain for the year."

Yet another brief comments, "BlackRock's Jeff Rosenberg Blogs '4 themes key for fixed income investing in 2018'" He writes, "We see four key themes likely to shape fixed income investing in 2018, as I write in my new Fixed income strategy Fuel for (over)heating and more of my favorite themes.... Fiscal stimulus from tax cuts and spending plans -- on top of a U.S. economy operating at full employment and both the U.S. and a handful of other developed economies operating above capacity -- may provide fuel for an overheating debate in 2018."

A sidebar entitled, "Best Days Behind Us Says Columbia in 2018 Playbook," tells us, "Columbia Threadneedle writes in "The 2018 fixed-income playbook: less risk, more diversification," "On the heels of two good years in the bond market, the best days for fixed income are likely behind us. In 2016, there were strong returns in most sectors -- especially high-yield corporate bonds, which generated double digit gains. It was more of the same in 2017: The year was driven by strong global demand and scarce inflation. Returns will likely struggle to match a similar pace in 2018 based on a lower starting point for yields and expectations for low inflation and rising interest rates."

Global Head of Fixed Income Colin Lundgren explains, "And there's no extra risk premium to compensate investors for any negative surprises. The temptation is to extrapolate recent returns and suggest another good year for bonds, but our analysis suggests something less. A lower starting point in bond yields reduces the total return opportunity in fixed income.... To put it simply: Low starting yields mean less cushion for being wrong and less upside for being right."

Finally, we'd like to remind you about our second annual Bond Fund Symposium conference, which will be held March 22-23, 2018 at the InterContinental Los Angeles Downtown. Our first bond fund event last year in Boston attracted 150 bond fund managers, marketers, fixed-income issuers, investors and service providers, and we expect our LA show to be even bigger. For those planning on attending, please register and make hotel reservations soon, and we hope to see you in LA next month!

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