The October issue of our Bond Fund Intelligence, which was sent out to subscribers Monday, features the lead story, "Worldwide Bond Fund Assets Jump in Q2; US, Brazil Up Big," which looks at the latest rankings of global bond fund markets and "Ultra-Shorts in Europe, Euro; Highlights from EMFS Dublin," which reviews comments on ultra-short bond funds at our recent European Money Fund Symposium. BFI also recaps the latest Bond Fund News and includes our Crane BFI Indexes, which show bond fund yields were mixed while assets continue flowing in September. 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 "Worldwide" article says, "The Investment Company Institute released its 'Worldwide Regulated Open-Fund Assets and Flows Second Quarter 2019' recently, and the most recent data collection on mutual funds in other countries shows that global bond fund assets rose $1.007 trillion, or 9.5%, to $11.640 trillion in Q2'19. The increases were led by bond funds domiciled in the U.S., Luxembourg, Brazil and Ireland. Worldwide bond fund assets, which broke $10 trillion in Q4'17, have increased by $1.387 trillion, or 13.5%, the past 12 months."
It continues, "Over 12 months, the U.S., Luxembourg and Brazil showed the largest increases in bond fund assets. Ireland, Canada and China also showed big gains. France, The Netherlands, Austria and India saw declines in Q2, while the UK was the biggest asset loser over the past year.
Our "Ultra-Shorts in Europe, Euro" piece explains, "Crane Data recently hosted its 7th annual European Money Fund Symposium in Dublin, Ireland, which included a handful of discussions involving ultra-short bond funds and the space beyond money market funds. We quote from the 'Senior Portfolio Manager Perspectives' session, below, which was moderated by Kieran Davis of BGC Partners and featured J.P. Morgan Asset Management's Neil Hutchison, Dreyfus CIS's Jim O'Connor and Northern Trust AM's Peter Yi.
Hutchison says, "Sitting in European funds this year, the duration position of an ultrashort has really helped provide some performance. I've probably never been as long in duration as I was [in] early summer. It's a one-year maximum portfolio duration, I was sitting around 0.95 a year at one point. We've taken a bit of those chips off the table, but we're still relatively long duration.... We do believe that the ECB is arguably, at this stage, underpriced."
He explains, "We're going to maintain a long duration position. The point there is that duration, even in a negatively yielding world, has allowed us to have quite meaningful price performance. For our ultra-short income ETFs in Europe, with that sort of longer duration position, yes, everything in the fund is carrying negative but the performance year-to-date is positive 40 basis points. This is part of the narrative that we've got right now -- yield doesn't equal return. This ETF European ultra-short product is a case in point for that.... I mean there is still a bit of a roll down from negative to even more negative in Europe, so it's a relative point."
Our Bond Fund News includes the brief "Yields Mixed, Returns Down in Sept," which says, "Bond fund yields were flat while returns were mostly off last month. Our BFI Total Index returned -0.19% over 1-month and 6.62% over 12 months. The BFI 100 returned -0.21% in Sept. and 7.58% over 1 year. Our BFI Conservative Ultra-Short Index returned 0.18% over 1-mo and 2.70% over 1-yr; Ultra-Shorts averaged 0.15% in Sept. and 2.84% over 12 mos. Short-Term returned 0.01% and 4.68%, and Intm-Term lost -0.37% but rose 8.65% over 1-year. BFI's Long-Term Index returned -0.61% in Sept. and 11.57% for 1-year; our High Yield Index returned 0.34% in Sept. and 5.22% over 1-year.
In another News brief, The Wall Street Journal writes, "Bond Funds Continue to Attract Cash." It says, "Give us our bonds! That seemed to be the cry of fund investors in the third quarter. Despite the resilience of the stock market -- and the healthy gains registered by stock funds so far in 2019 -- wary investors continued to send billions of dollars to the relative safety of bond funds."
A third News update covers the press release, "Schwab Expands Low-Cost Access to Fixed Income With Three New Exchange-Traded Funds." It tell us, "Charles Schwab Investment Management, Inc. (CSIM) ... is launching three new fixed income exchange-traded funds (ETFs). The new fixed income ETFs, whose 0.06% ... expense ratios ... are among the lowest in their respective projected Morningstar categories, will begin trading on October 10, 2019. The three funds are: Schwab 1-5 Year Corporate Bond ETF, Schwab 5-10 Year Corporate Bond ETF and Schwab Long-Term U.S. Treasury ETF."
BFI features a sidebar entitled "Thrivent Limited Maturity Bond Fund on AssetTV." This article says, "AssetTV recently featured Greg Anderson and Jon Paul Gagne, Sr. of Thrivent Asset Management's Limited Maturity Bond Fund. On the video, Anderson comments, 'Mike Landreville and I have been co-portfolio managers since 2005.... We're supported by a team of investment-grade analysts: a total of six investment-grade analysts, four securitized PMs and analysts, two fixed-income traders and then a team of high-yield and leveraged loan analysts and PMs if we choose to allocate to high-yield.... At a high level, the objective of the fund ... is: We want to be able to generate more yield than our peer group, than our competitors, with less risk. We do that in three ways: it's sector allocation, duration and yield curve management, and securities selection."
Finally, another sidebar, entitled, "JPM on Low Duration BFs," tells us, "J.P. Morgan Securities recently published a 'Low duration bond fund update,' which reviews the ultra-short bond fund segment. They write, 'Low duration bond funds have seen continued steady growth in recent months. We estimate total AUM across short-term and ultrashort mutual funds and ETFs registered $727bn as of 8/31/19, up $66bn year to date and $79bn year over year.... Both ultrashort funds (those with a portfolio duration between 0.5 and 1.5 years), and short-term funds (with a longer duration of 1.5 to 3.5 years) have seen growth lately, with balances rising by $13bn and $22bn, respectively over the last 4 months. This represents something of a revitalization for short-term funds, which were relatively flat for most of 2018 as investors flocked to ultrashorts."
