The August issue of our Bond Fund Intelligence, which will be sent out to subscribers Wednesday morning, features the lead story, "Fund Concentration Grows in Muni Bond Space; Big Flows," which discusses recent articles on the municipal fixed-income space and "Northern's Peter Yi Part II: Ultra-Shorts & Segmentation," which features BFI's recent "profile" 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 July. 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, "For some reason, a number of articles have appeared recently on municipal bond funds. So we decided to review them and take a look at this underappreciated corner of the fixed-income fund marketplace. Our Crane Muni BFI Index currently tracks 126 funds with $350 billion in assets, representing 12.8% of the overall bond fund universe tracked by BFI. As the Journal story below points out, the market is highly concentrated with Vanguard managing almost half -- 45.1% -- of all fund assets.
It continues, "The Wall Street Journal wrote recently that, 'The Municipal-Bond Market Is Now Controlled by Just a Few Firms.' They tell us, 'A few behemoths are increasingly dominating the municipal market, helping to lower prices for many investors but also sparking worries about concentration and influence. There has been a mammoth shift in the $4 trillion muni market over the past decade as investors have increasingly used professional money managers to invest in both high- and low- grade state and local government debt.'"
The WSJ article continues, "Mutual-fund holdings of municipal bonds now total $738.6 billion, according to Federal Reserve data, a more than 50% increase since 2009. This shift has been particularly beneficial to firms like Nuveen LLC and Vanguard Group. Since 2010, more than one in three new dollars going to muni funds (classified as high yield) has gone to Nuveen, according to an analysis of Morningstar Direct data through June. Over that time, almost a third of new money going to all muni funds has gone to Vanguard."
Our "Northern" profile explains, "This month, BFI speaks with Peter Yi, Northern Trust Asset Management's Director of Short Duration Portfolio Management and Head of Taxable Credit Research. We discuss Northern's history and presence in the ultra-short sector, cash segmentation and a number of other issues below. Our Q&A follows. (Note: We published some of this interview in our July Money Fund Intelligence, but this version contains additional sections.)
When discussing non-2a-7 vehicles, Yi says, "A lot of people recognize Northern Trust for its significant SEC-registered mutual funds, but that only represents about half of our liquidity-focused AUM.... What we really do is focus on designing solutions, whether they're commingled or customized through separately managed accounts. Our product offerings range from registered money market mutual funds, roughly about $117 billion, to our collective and common STIFs, which represent probably about $50 billion, to our securities lending reinvestment -- that's about $60 billion, and there are some other pockets of SMAs. Our global offshore funds represent about $20 billion in three different currencies: U.S. dollar, euro and sterling."
He adds, "[The other pools are] important because it gives us scale, something that we need to have to be very competitive in this marketplace. In addition to our $225 billion, we also have roughly $20 billion in ultra-short assets under management, which has been a real growth area for us and certainly a strategic focus over the last few years."
Our Bond Fund News includes the brief "Yields Slide Again, Returns Jump in July," which explains, "Bond fund yields fell while returns rose last month. Our BFI Total Index returned 0.42% over 1-month and 5.69% over 12 months. The BFI 100 returned 0.33% in July and 6.49% over 1 year. Our BFI Conservative Ultra-Short Index returned 0.32% over 1-mo and 2.56% over 1-yr; the BFI Ultra-Short Index <b:>`_averaged 0.37% in July and 2.69% over 12 mos. `BFI Short-Term returned 0.19% and 4.26%, and BFI Intm-Term returned 0.26% and 6.99%. BFI's Long-Term Index returned 0.47% in July and 8.69% for 1-year; our High Yield Index returned 0.58% in July and 5.57% over 1-year.
Another News brief quotes The WS Journal's "Investors Pour Money Into Bond Funds at a Record Pace." It explains, "Investors are piling into safe-haven bonds at a record pace, a sign that caution remains despite stocks pushing toward records. Mutual funds and exchange-traded funds tracking bonds posted $12.1 billion of inflows for the week ended July 17, the 28th consecutive week of inflows. That brings the total so far this year to $254 billion, on pace for a record $455 billion on an annualized basis in 2019, according to a Bank of America Merrill Lynch analysis of EPFR Global data. That compares with $1.7 trillion in bond inflows over the past 10 years, the bank said."
A third News update cites a Financial Times piece, "Anxious investors rush to bond funds at fastest rate since crisis." The FT writes, "About $487bn flowed into fixed income funds this year, up from $148bn in the first half of 2018, according to figures from Morningstar.... It is the highest level of first-half net inflows into bond mutual funds for at least a decade.... Robert Tipp, head of global bonds for PGIM Fixed Income, the US asset manager, says, 'With ageing demographics and burgeoning savings, bond markets are attractive. Trade tensions, very muted growth globally and high volatility have also pushed investors to bonds.... The bottom line for investors is they are looking for income and are concerned about risk.'"
Finally, a sidebar entitled, "More on Bond ETFs at $1T," explains, "We wrote last month about the press erroneously calling Bond ETFs $1 trillion while they are only at (now) $735 billion. (See our July BFI News, 'Bond ETFs Break $700 Billion, Not $1 Trillion Like WSJ Says.') But the $1 trillion number is too hard to resist, so the stories keep coming. (They're counting non-U.S. funds)."
It continues, "Pensions & Investments' story, 'Bond ETFs Hit $1 Trillion, Now Set for Takeoff,' explains, 'Global assets under management in bond exchange-traded funds passed the $1 trillion mark for the first time during the quarter ended June 30, and industry sources are confident assets will double over the next five years, possibly sooner, thanks to increasing demand across the investor spectrum.'"
