The March issue of our Bond Fund Intelligence, which will be sent out to subscribers Thursday morning, features the lead story, "Intermediate King of Bond Categories; Short Whiplash," which looks at the biggest segment of the bond fund marketplace, and the profile, "Calvert’s Khanduja: Socially Responsible Short Duration," our latest Portfolio Manager interview. BFI also recaps the latest Bond Fund News and includes our Crane BFI Indexes, which show lower bond fund yields and higher returns again in February. We excerpt from the new issue below. (Contact us if you'd like to see our Bond Fund Intelligence and BFI XLS spreadsheet, or our Bond Fund Portfolio Holdings data. Also, we're still taking registrations (and offering free tickets to select clients) for our 3rd annual Bond Fund Symposium, March 25-26, 2019 in Philadelphia. We hope to see you there!)
Our Intermediate Bond Fund story says, "Morningstar's 'Fund Spy' recently wrote a piece entitled, 'The Intermediate-Term Bond Category Is a Big Tent,' which got us thinking about this massive segment of the bond fund marketplace. We excerpt some of their comments, and review our own categorization and criteria for Intermediate-Term Bond Funds below."
It continues, "They write, 'As the third-largest U.S. fund category, the intermediate-term bond Morningstar Category sprawls across more than 300 funds and counts $1.4 trillion in assets. The size of the group reflects the essential role that intermediate-term bond funds often play in investor portfolios. Funds in this category invest primarily in investment-grade bonds and keep their durations -- a measure of interest-rate sensitivity -- in the intermediate-term range. They offer a moderate dose of interest-rate risk and should hold up reasonably well when equity markets suffer losses driven by other factors."
BFI writes, "Crane Data's Intermediate-Term Bond Fund category totals $898.9 billion, or 35.1% of the total $2.559 trillion tracked by our Bond Fund Intelligence. Note that ICI currently totals the bond fund universe at $4.133 trillion (these are their 1/31 numbers; their 2/28 data won't be out for a couple weeks), so our coverage is 61.9% of the bond fund universe. Intermediate-Term is by far Crane's largest category, followed by Long-Term, but note that we don't break funds by credit, only by maturity. (These numbers don't include ETFs either -- we track an additional $539.4 billion (82.2%) of ICI's total $656 billion.)"
Our "Fund Profile" says, "This month, BFI interviews Vishal Khanduja, Vice President at Calvert Research and Management (now part of Eaton Vance). Calvert, one of the original “ESG” or responsible investment managers, is based in Washington, D.C., with assets under management of over $14 billion (as of 12/31/18). We discuss their Short Duration Income Fund, and a number of other bond market topics, below."
BFI asks Khanduja to "Give us a little bit of background." He responds, "Calvert traces its roots back to 1976. We began in the money market business, launching the first variable-rate government money market fund in the United States. In 1982, we launched one of the first responsible-investment funds, the Calvert Balanced Fund. The short- duration franchise originated in 2002, with the Calvert Short Duration Income Fund. We expanded and added the Calvert Ultra-Short Duration Income Fund in 2006."
Khanduja continues, "As for me, I joined Calvert in 2012. My primary goal at the time was to strengthen our approach to portfolio construction and risk management so that our process would also appeal to larger institutional investors. We had strong success in managing a range of strategies across the yield curve and credit spectrum. This broader view expands our opportunity set in each of the strategies we manage, and our multi-sector focus ensures we capture them well. Our goal is to manage strategy-specific portfolios that address specific risk and return objectives." (Watch for more excerpts from this article later this month, or see the latest issue of BFI.)
Our Bond Fund News includes the brief "Yields Decline, Returns Rise in Feb." It explains, "Bond fund yields fell for all categories except Ultra-Shorts. The BFI Total Index returned 0.44% for 1-month and 2.56% over 12 months. The BFI 100 returned 0.37% in February and 2.98% over 1 year. Our BFI Conservative Ultra-Short Index returned 0.34% over 1 month and 2.17% over 1-year; the BFI Ultra-Short Index averaged 0.41% in Feb. and 2.00% over 12 mos. BFI Short-Term returned 0.32% and 2.28%, and BFI Intm-Term Index returned 0.12% and 2.66% for 1-mo and 1-year. BFI’s Long-Term Index returned 0.12% in Feb. and 2.62% for 1-yr; BFI’s High Yield Index returned 1.47% in Feb. and 3.10% over 1-yr."
Another brief, "lBD Says 'Vanguard Ratchets Down ETF Fees, Offering Cheapest Bond Fund,'" tells us, "A Bloomberg article comments, 'Vanguard Group, the second-largest issuer of exchange traded funds, is escalating an industry price competition by lowering fees on three of its popular products. The asset manager will reduce ETF fees on its Vanguard Total Bond Market ETF (BND), making it the cheapest U.S. bond fund, according to regulatory filings…. Vanguard Total Bond Market ETF will change its expense ratio to 0.035%, according to the filings. That makes it cheaper than comparable funds: SPDR Portfolio Aggregate Bond ETF (SPAB) carries an expense ratio of 0.04%, and iShares Core U.S. Aggregate Bond ETF (AGG) ... 0.05%.”
A News update titled, "Kiplinger’s Says No to Junk Bond Funds," says, "The article, 'Junk Bond Funds Don't Belong in Long-Term Portfolios,' tells us, 'High-yield bond funds are typically marketed to individual investors using pleasant-sounding names to suggest that they are less risky than they truly are. But, don’t lose sight of the fact that “high yield” is a euphemism for 'junk.' Funds with names like Opportunity & Income or Income Advantage are intended to inspire confidence even though the language in the prospectus may state that, 'junk bonds … involve greater risk of default.'"
A fourth News brief, "BlackRock Tells Us, 'Why Bonds Are Back,'" says, “BlackRock Chief Fixed Income Strategist Scott Thiel explains why bonds are making a comeback, and shares granular views of various fixed income asset classes.”
Finally, a sidebar entitled, "Inflows Return to BFs," explains, "ICI’s most recent weekly 'Combined Estimated Long-Term Fund Flows and ETF Net Issuance' report, with data as of March 6, tells us, 'Bond funds had estimated inflows of $6.06 billion for the week, compared to estimated inflows of $11.66 billion during the previous week. Taxable bond funds saw estimated inflows of $3.99 billion, and municipal bond funds had estimated inflows of $2.06 billion.' Over the past 5 weeks through 3/6/19, bond funds and bond ETFs have seen inflows of $52.1 billion."
