The June issue of our Bond Fund Intelligence, which will be sent out to subscribers Thursday morning, features the lead story, "Vanguard Launches Total World Bond ETF Amidst Pain," which reviews recent troubles with Global bond funds and the launch of a new Vanguard ETF, and the profile, "JPMAM's McNerny Talks on Ultra-Short Income ETF," which reviews a recent J.P. Morgan Asset Management Webcast. Also, we recap the latest Bond Fund News, including how most bond fund yields inched higher in the latest month. BFI also includes our Crane BFI Indexes, which show returns higher in May for all categories except Global and High Yield funds. We excerpt from the latest BFI below. (Contact us if you'd like to see a copy of Bond Fund Intelligence and our BFI XLS spreadsheet "complement," and watch for our next Bond Fund Portfolio Holdings data set to be sent out next Thursday (6/21).
Our lead BFI story says, "A press release titled, "Vanguard Announces Plans To Launch Total World Bond ETF," explains, "Vanguard today filed a preliminary registration statement with the Securities and Exchange Commission for Vanguard Total World Bond ETF. The ETF will be the industry's first U.S.-domiciled index product offering investors access to the entire global investment-grade bond universe in a single portfolio. It is expected to launch in the third quarter of this year.""
They tells us, "The fund will be structured as an ETF of ETFs, investing directly in two existing low-cost ETFs: Vanguard Total Bond Market ETF (BND) and Vanguard Total International Bond ETF (BNDX). This structure enables the Vanguard Total World Bond ETF to achieve immediate scale by using existing exposure from the underlying ETFs and is expected to result in tighter bid/ask spreads and lower operating expenses than investing directly in the benchmark's constituents. The approach is similar to Vanguard Total Corporate Bond ETF (VTC), which launched in November, 2017, and invests in Vanguard's existing short-, intermediate-, and long-term corporate bond ETFs."
Vanguard CIO Greg Davis comments, "With the Total World Bond ETF, Vanguard will be the first firm to offer U.S. investors a single index product with exposure to the entire global investment-grade bond universe. It will be simple, convenient, and highly diversified, with an expense ratio in line with our current low-cost fixed income ETFs."
Our piece quoting JPMAM's McNerny says, "Recently, J.P. Morgan Asset Management hosted a Webcast entitled, "Targeting lower duration amid today's higher rates," which featured JPMorgan's Ultra-Short Income ETF (JPST). The description tells us, "While rates continue to rise, core bond duration remains near record highs. The videocast discusses how JP Morgan Ultra-Short Income ETF (JPST) can help clients reduce duration risks without sacrificing yield potential. The experts share their latest market views and investment themes."
Portfolio Manager James McNerny comments, "We think about ultra-short here at J.P. Morgan Asset Management as a part of the global liquidity business, which is anchored by our $460 billion money market fund complex. While JPST is relatively new, ultra-short is not new to us. We manage about $60 billion in ultra-short strategies that we brand as 'Managed Reserves.'"
He asks, "What does it mean to be a part of global liquidity? We approach the ultra-short space as the 'next step out' from money market funds. We employ many of the best practices of our money market fund business, which tends to be conservative in nature. We're just taking them slightly out the curve. Given the size and importance of this business to JP Morgan, it affords us tremendous amounts of resources. We have four portfolio managers on JPST with an average industry experience of twenty-one years."
A Bond Fund News brief, entitled, "Yields and Returns Mixed in May," explains, "Most bond fund category yields inched higher last month and returns were up for all but Global and High-Yield. The BFI Total Index averaged a 1-month return of 0.31% and the 12-month gain fell to 0.85%. The BFI 100 returned 0.33% in May and 0.77% over 1 year. The BFI Conservative Ultra-Short Index returned 0.11% over 1 month and 1.28% over 1-year; the BFI Ultra-Short Index averaged 0.19% in May and 1.17% over 12 mos. Our BFI Short-Term Index returned 0.24% and 0.65%, and our BFI Intm-Term Index returned 0.36% and -0.04% for the month and year. BFI's Long-Term Index returned 0.33% in May and 0.26% for 1 yr; BFI's High Yield Index returned -0.01% in May and 2.24% for 1 yr."
Another brief quotes a Kiplinger's article on PIMCO Low Duration Income," entitled, "This Short-Term Bond Fund Provides Protection From Rising Rates." It comments, "At last, short-term bonds offer respectable yields that surpass 2% -- and it only took six interest-rate hikes over three years by the Federal Reserve. With more increases to come, short-term bonds have an added bonus: Their prices sink less than those of longer-dated debt when interest rates rise.... Pimco Low Duration Income (PFIAX) boasts a duration of 1.4 years.... Managers Daniel Ivascyn, Alfred Murata and Eve Tournier want to generate income and keep interest-rate sensitivity in check."
In other news, Barron's "5 Smart Places to Park Cash" article tells us, "One of the benefits of a steady dose of interest-rate hikes by the Federal Reserve -- six since late 2015 -- is better returns on cash.... Some money-market accounts offer yields in the 1.7% range, a big improvement from the days when the Fed kept rates at near zero.... Money-market accounts aren't the only way to take advantage of this. Short-term bond exchange-traded funds are an even higher-yielding alternative, though they do bear some risk."
A sidebar on the "New Hartford Short ETF," explains, "New entries in the short-term and ultra-short space continue. A press release entitled, "Hartford Funds Continues ETF Rollouts with Launch of Hartford Short Duration ETF," tells us that, "Hartford Funds today announced the launch of Hartford Short Duration ETF (HSRT), which seeks to provide current income and long-term total return by investing in fixed income securities. HSRT, along with another recently launched fixed income ETF in April 2018, the Hartford Schroders Tax-Aware Bond ETF (HTAB), adds to Hartford Funds' ETF suite of six fixed income and seven multifactor ETFs."
The piece quotes Vernon Meyer, CIO of Hartford Funds, who adds, "Lower duration and more frequent reinvestment are strong tools to help address rising rates within a fixed income allocation, and our actively-managed Short Duration ETF is designed to deliver both. We see fixed income ETFs as being well-positioned for the current market, with the goals of providing income and stability to help round out a portfolio."
