The July issue of our Bond Fund Intelligence, which was sent out to subscribers Monday morning, features the lead story, "Bond ETFs Break $700 Billion (Not $1 Trillion Like WSJ Says)," which discusses the rapid but exaggerated growth of Bond ETFs, and "Pope, Martucci & Carroll on Ultra-Shorts at Symposium," which highlights what the three had to say at their "SMA Ultra-Short Update; Bond Fund Reg talk at Crane's recent Money Fund Symposium conference. 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 June. 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.)

Our lead article says, "Bond ETFs have clearly been growing rapidly and bringing in record flows, but recent press coverage is exaggerating the overall growth. The Wall Street Journal wrote recently 'Bond Exchange-Traded Funds Pass $1 Trillion in Assets,' but overall Bond ETF total just over $700 billion, according to the ICI. The WSJ claims, 'The amount of money in fixed-income exchange-traded funds passed $1 trillion last month, an ascendance that has reshaped the market in which countries and companies raise money to pay their bills.' (The article cites 'Bloomberg via BlackRock' as its source; perhaps they include non-U.S. bond ETFs.)"

It continues, "The Journal explains, 'Just 20 years ago, bond ETFs didn't even exist.... But from that sleepiness came opportunity. Firms such as BlackRock Inc., Invesco Ltd. and State Street Corp. put millions behind building a new class of investment: the bond ETF. The idea was to straddle two disparate markets by wrapping slow-to-trade bonds in lightning-fast funds. Like a mutual fund, ETFs bundle together hundreds of bonds into a single ticker. Unlike mutual funds, ETFs trade all day.'"

BFI writes, "It continues, 'The biggest proponents of bond ETFs say their growth has added much-needed speed to the sluggish business of bond trading. This allows investors to move money swiftly when market sentiment turns. Skeptics argue that bond ETFs are a dangerous combination. They say the product could accelerate a selloff if fleeing investors flood the debt market with ... sell orders. As this debate continues, bond ETFs just get bigger and bigger.'"

Our "Pope, Martucci & Carroll" piece explains, "This month, Bond Fund Intelligence excerpts from a session entitled, 'SMA & Ultra‐Short Update; Bond Fund Regs' from our recent Money Fund Symposium conference. The segment featured Kerry Pope of Fidelity Investments, Dave Martucci of J.P. Morgan Asset Management, and Brenden Carroll from Dechert LLP. The three discussed ultra-short bond fund products, investments, and regulations, as well as separately managed account issues. Highlights of the Q&A follow.'"

When asked about Fidelity Conservative Income's launch and strategies, Pope answered, "I think from a timing standpoint, we hit it well. We were aware of the regulatory reforms that were coming along in the money market space, and we wanted to provide a product that was more consistent with a strategic liquidity strategy. Armed with the feedback that our clients weren't excited about the new [MMF] constraints, we launched this product just outside of the prime money market space."

He adds, "It was able to produce a great return, that was, at that time, probably about 50 to 60 bps over Prime Money Market Funds. [W]e sold it as a strategic cash alternative [that] avoided gates and fees. So, a lot of our retail clients took to it, and since then we've had some follow through with institutional clients. But for the most part, I'd say [it’s] 80+% retail-based clients."

Our Bond Fund News includes the brief "Yields Plunge, Returns Surge in June." It explains, "Bond fund yields fell again for all categories except Ultra-Short last month. The BFI Total Index returned 0.99% for 1-month and 5.60% over 12 months. The BFI 100 returned 1.12% in June and 6.30% over 1 year. Our BFI Conservative Ultra-Short Index returned 0.34% over 1 month and 2.56% over 1-year; the BFI Ultra-Short Index averaged 0.44% in June and 2.72% over 12 mos. BFI Short-Term returned 0.68% and 4.27%, and BFI Intm-Term Index returned 1.15% and 6.85% for 1-mo and 1-year. BFI's Long-Term Index returned 1.58% in June and 8.47% for 1-yr; our High Yield Index returned 1.62% in June and 5.84% over 1-yr."

Another News brief, "WSJ Writes 'What Investors Need to Know About Bond ETFs,'" states, "Money has poured into bond ETFs this year, amid uncertainty about the direction of stocks. A net $75.2 billion flowed into bond funds listed on U.S. exchanges in the first half of the year ... according to ... The case for most bond ETFs is simple. 'Concerns about the global political and economic situation have helped drive assets into bond ETFs,' says Deborah Fuhr, managing partner and founder of ... ETFGI.'"

A third News update, "Bloomberg Says, 'Bond Funds Drift Into Risky Debt, Adding to Angst Over Liquidity,'" asks, "What's really inside bond funds these days? The answer, for many of them, is more risk than there used to be.'"

Finally, a sidebar entitled, "Inflows Intensify in June," explains, "Bond fund inflows accelerated in the latest month, the strongest since January 2018. ICI's most recent weekly 'Combined Estimated Long-Term Fund Flows and ETF Net Issuance,' with data as of July 2, says, 'Bond funds had estimated inflows of $10.44 billion for the week, compared to estimated inflows of $10.53 billion during the previous week. Taxable bond funds saw estimated inflows of $8.81 billion, and municipal bond funds had estimated inflows of $1.63 billion.' Over the past 5 weeks, bond funds and ETFs have seen an inflows of $45.4 billion."

It adds, "Their latest 'Trends in Mutual Fund Investing - May 2019' shows bond fund assets rising by $57.8 billion, or 1.3%, to a total of $4.377 trillion in May. Over the past 12 months through 5/31/19, bond fund assets have increased by $275.8 billion, or 6.7%. The number of bond funds rose by 2 in May to 2,160 and was up 38 from a year ago."

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