The May issue of our Bond Fund Intelligence, which was sent to subscribers Thursday morning, features the lead story, "ICI's Stevens Discusses Bond Funds, ETFs, Retirement," which interviews the ICI President and CEO, and, "ICI 2020 Fact Book Reviews Bond Fund Trends, Flows," which reviews the ICI's latest Fact Book. BFI also recaps the latest Bond Fund News and includes our Crane BFI Indexes, which show that bond fund yields fell and returns rebounded in April. 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 "ICI's Stevens" profile says, "This month, Bond Fund Intelligence interviews Paul Schott Stevens, President & CEO of the Investment Company Institute (ICI). Stevens, who is retiring at the end of this year, has been with the mutual fund trade association for 20 years. We profiled him in our recent MFI newsletter, so we also threw in a few questions on bond funds, ETFs and his outlook for the future. The bond part of our Q&A follows."
BFI asks, "How are bond funds holding up?" Stevens tells us, "People have been looking to try to find sources of yield in bonds with the low interest rates. We follow the various classes of bond funds, the investment grade, U.S. Treasury, the high yield, bank loan, etc. All of those have experienced outflows during some periods of the past couple of months that are larger than the equity funds. But still fairly modest, all things considered. What the funds experienced in terms of the outflows have been a very small part of the overall trading volume."
Stevens continues, "The other thing to observe is that the Fed facilities are really designed to assist fixed income investors of all kinds. They've got corporates in there, they've got asset-backed securities, there's municipal securities. There's a determination to try to make sure that all of these markets are functioning effectively. And I think it's been very successful in terms of that objective."
Our ICI 2020 Fact Book piece reads, "The Investment Company Institute recently published its '2020 Investment Company Fact Book,' which contains a review of the bond fund marketplace in 2019 and a wealth of statistics on bond funds. ICI's section on 'Bond Mutual Funds' says, 'Bond mutual fund net new cash flows typically are correlated with the performance of US bonds (Figure 3.8), which, in turn, is largely driven by the US interest rate environment.'"
The 2020 Fact Book continues, "Taxable bond funds received inflows in every month of 2019, with net inflows totaling $219 billion in 2019.... During the fourth quarter of the year, investors added $75 billion, on net, to taxable bond mutual funds despite increasing long-term interest rates (meaning bond prices were falling)."
Our Bond Fund News includes the brief, "Yields Fall, Returns Rebound in April," which tells us, "Bond fund yields dropped and returns jumped last month after an ugly March. Our BFI Total Index returned 1.47% over 1-month and 2.50% over 12 months. The BFI 100 gained 1.94% in April and rose 4.38% over 1 year. Our BFI Conservative Ultra-Short Index returned 1.10% over 1- mo and 1.78% over 1-yr; Ultra-Shorts averaged 1.38% in April and 0.71% over 12 mos. Short-Term returned 1.61% and 2.17%, and Intm-Term rose 2.10% last month and 6.87% over 1-year. BFI's Long-Term Index returned 2.91% in April and 9.90% for 1-year; our High Yield Index rose 3.34% but fell 5.02% over 1-year."
In another News brief, we quote the Morningstar piece, "What Separated the Winners and Losers in the Bond Fund Whipsaw?" It explains, "The six-week period from March 1-April 16 offered investors an unusual window into the risks and biases within their bond funds. For some funds it was their heavy weights of credit-sensitive bonds; for others, it was the thinly traded securities whose prices swung widely; and in other cases, it was hedging strategies that were not sufficient.... Other funds deftly capitalized on having come into the turmoil defensively positioned."
A third News update covers the New York Times article, "Bonds Beat Stocks Over the Last 20 Years." It tells us, "You can count on stocks to beat bonds over the long haul. That, at least, is the common wisdom.... But not over long stretches lately. With the chaos in the stock market in recent months, some advantages for bonds might be expected. But the outperformance of bonds isn't just a short-term effect of the coronavirus downturn or of the economic conditions that preceded it in 2020."
Finally, BFI also features a sidebar that covers "The Independent Advisor for Vanguard Investors'" piece, "Almost Cash, But Better." Dan Wiener explains, "It isn't a money market fund and never has been, but Ultra-Short Bond has been a steady and reliable performer over its first five years with small price swings, low risk and better-than-cash returns. As [we] postulated at the fund's introduction in 2015, '[R]isk should be low, and investors who can handle small changes in NAV may indeed find this fund a good alternative to a money market, one that likely will provide more yield and greater returns over time.' In fact, Ultra-Short-Term Bond has lived up to that prediction, and then some."
