The March issue of Crane Data's Bond Fund Intelligence, which was sent out to subscribers Wednesday, features the lead story, "Bond ETFs Drawing Attention; Shorter-Duration Hot Lately," which reviews recent the recent growth and news on fixed-income ETFs, and the profile, "BlackRock Blogs on Short Treasuries, Indexes, Volatility," which excerpts from several recent BlackRock Blogs on bond fund issues. Also, we recap the latest Bond Fund News, including losses in February for most funds and the latest on the continued move higher in rates. BFI also includes our Crane BFI Indexes, which showed decreases in February in most sectors except conservative ultra-short and ultra-short funds. We excerpt from the latest BFI below. (Contact us if you'd like to see a copy of our latest Bond Fund Intelligence and BFI XLS. Note: We look forward to seeing some of you next week at our 2nd annual Bond Fund Symposium, which will take place at the Los Angeles InterContinental Downtown, March 22-23. Please feel free to stop by if you're in the area!)
Our lead Bond Fund Intelligence story says, "Bond ETFs continue growing rapidly, rising by $126.2 billion, or 29.5%, in 2017, to $553.3 billion, according to the ICI. This compares to growth of 11.2%, or $410.1 billion to $4.060 trillion for bond funds). We look at the growth of bond ETFs and the types of bond ETFs that are growing the fastest. (See the chart below for bond ETF assets by type.)"
It continues, "The Wall Street Journal writes, "Investors Warm Up to Bond ETFs," which is subtitled, "After many years of lagging behind stock-focused funds, bond ETFs draw attention." They tell us, "Fixed-income exchange-traded funds are late bloomers compared with their equities-based cousins. But their popularity has surged in recent years -- with funds focused on shorter-duration bonds drawing interest lately -- as investors look to marry the benefits of fixed income with the advantages of an ETF.""
They explain, "According to an October report from BlackRock Inc., assets under management in bond-focused ETFs have grown 25% annually for the past five years and are likely to reach $1.5 trillion by 2022. As of mid-March, there was $780 billion in these products, representing 15% of the total ETF market, according to BlackRock's iShares division, the biggest U.S. ETF firm by assets."
BFI's BlackRock Blogs piece says, "This month, BFI focuses on a recent paid of BlackRock Blogs, one of which focuses on the attractiveness of short-term Treasuries, one that discusses fixed-income ETFs, another than deals with market volatility. BlackRock has been posting Blog stories for a number of months, it's become an excellent source of news and analysis on the bond fund marketplace. We review and quote from these recent blog updates below."
We explain, "In his latest post, BlackRock Chief Fixed Income Strategist Jeffrey Rosenberg writes "The appeal of shorter-term U.S. Treasuries." He explains, "A rapid rise in short-term yields in U.S. government debt is restoring their appeal. This marks a major shift away from the post-crisis era of near-zero yields on such instruments. The upshot: Investors now have a viable alternative to cash with yields finally above inflation levels.""
The article adds, "Rosenberg tells us, "The steady increase in shorter-maturity bond yields provides a thicker cushion against concerns around further rises in interest rates. The light green line in the chart above shows interest rates would need to jump more than one percentage point to wipe out a year of income in the two-year Treasury note. This is nearly double the cushion on offer two years ago -- and far larger than the thin insulation provided by longer-term bonds today. We believe the short end offers relatively compelling income along with a healthy buffer against the prospects of further increases in yields."
A Bond Fund News brief entitled, "Yields Rise Again in February," explains, "Most bond fund categories again showed losses last month, except Conservative Ultra-Short and Ultra-Short. Yields rose for all types of funds in February. The BFI Total Index averaged a 1-month return of -0.44% and the 12-month gain fell to 1.98%. The BFI 100 returned -0.61% in Feb. and 1.77% over 1 year. The BFI Conservative Ultra-Short Index returned 0.12% over 1 month and 1.20% over 1-year; the BFI Ultra-Short Index averaged 0.06% in Feb. and 1.14% over 12 mos. Our BFI Short-Term Index returned -0.15% and 0.94%, and our BFI Intm-Term Index returned -0.77% and 0.98% for the month and year. The BFI High Yield Index rose -0.64% in Feb. and 3.87% for 1 year."
Another brief, entitled, "Wiener Says "Don't Bury Bonds." The Independent Adviser for Vanguard Investors writes in its March issue, "If you own short-maturity bonds, you should welcome more, rather than fewer Fed interest rate hikes. Why? They translate into higher yields. Take [Vanguard] Ultra-Short-Term Bond, the funds I've called a money-market substitute and which turned three years old this month."
Yet another brief comments, "CNBC.com Writes "Bets against junk bond funds reach record levels on rising rate fears." They say, "The renaissance in high-yield bonds looks like it's over, at least judging by the behavior of short sellers. Demand to borrow ETFs that track junk bonds indexes, a key metric determining short interest, has reached a monetary value of $7 billion, its highest level ever recorded, according to IHS Markit analyst Sam Pierson."
A sidebar entitled, "MW on Western's Leech" tells us, "MarketWatch posted the article, "Veteran manager of $22 billion bond fund spots the 'No. 1 opportunity'." It explains, "Investors have been selling bonds on expectations that inflation will push up interest rates, eroding the value of fixed-income securities. Ken Leech, who manages a $22 billion bond fund that’s ranked in the top percentile in its category over the past 10 years, says that could be a serious mistake."
It adds, "The piece tells us, "Leech is the investment chief of Western Asset Management in Pasadena, Calif., which has about $442 billion in assets under management. He's led the team-based management of the $22 billion Western Asset Core Plus Bond Fund (WACPX) since it was established in 1998."
