The July issue of our Bond Fund Intelligence, which was sent to subscribers Wednesday morning, features the lead story, "Worldwide Bond Funds Fall $1 Tril. in Q1'20 to $10.8 Tril.," which reviews ICI's latest collection of global bond fund markets, and "T. Rowe Price's Lynagh Talks Ultra-Short Bond Funds Too," which interviews T. Rowe Price Group VP Joseph Lynagh. BFI also recaps the latest Bond Fund News and includes our Crane BFI Indexes, which show that bond fund yields plunged and returns jumped 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 Worldwide Bond Funds piece reads, "Bond fund assets worldwide plunged by almost $1 trillion in the latest quarter to $10.8 trillion, driven lower by declines in the U.S., Ireland, Luxembourg and Brazil. China was the only major country showing an increase in Q1. We review the ICI's 'Worldwide Open-End Fund Assets and Flows, First Quarter 2020' release and statistics below."
ICI's report says, "Worldwide regulated open-end fund assets decreased 12.6% to $47.95 trillion at the end of the first quarter of 2020, excluding funds of funds.... The Investment Company Institute compiles worldwide regulated open-end fund statistics on behalf of the International Investment Funds Association (IIFA).... The collection for the first quarter of 2020 contains statistics from 46 jurisdictions."
Our "T. Rowe's Lynagh" profile says, "This month, BFI interviews T. Rowe Price Group Vice President Joseph Lynagh, who runs the firm's cash management and ultra-short bond strategies and will be retiring early next year after three decades at the Baltimore-based fund manager. We interviewed Lynagh for our MFI newsletter, but decided to ask him a few bond questions while we had him. This part of our Q&A follows."
BFI says, "Give us some ultra-short history." Lynagh tells us, "We also manage our securities lending collateral in a fund that's called the Short-Term Fund. That's in fact a bond fund, but it operates with a very high focus on liquidity preservation of capital. Post-GFC, in 2012, we decided to expand the franchise into the ultra-short space and launched Ultra-Short Bond Fund, which was very prescient at that time when rates were all crowded around zero. It's proven to be a great strategy and we've grown that to be about $2.3 billion so far."
BFI also asks, "Talk about the Ultra-Short line up, what did those see earlier this year?" Lynagh responds, "If you go back to March, I think the way I tried to describe it is, this was purely and simply a liquidity crisis. It had concerns about credit in the offing, but those hadn't manifested themselves yet. This was pure and simply a run for cash against the backdrop where liquidity evaporated pretty quickly.... We were seeing marks in our portfolio just falling, and it really impacted virtually every portion of the portfolio."
Our Bond Fund News includes the brief, "Yields Plunge, Returns Surge (Again)," which explains, "Bond fund yields plunged and returns jumped once again in June. Our BFI Total Index returned 1.10% over 1-month and 3.58% over 12 months. The BFI 100 gained 0.99% in June and rose 4.78% over 1 year. Our BFI Conservative Ultra-Short Index returned 0.42% over 1-mo and 1.97% over 1-yr; Ultra-Shorts averaged 0.76% in June and 1.59% over 12 mos. Short-Term returned 0.95% and 3.02%, and Intm-Term rose 1.14% last month and 6.53% over 1-year. BFI's Long-Term Index returned 1.44% in June and 9.31% for 1-year; our High Yield Index rose 0.88% but is down 1.38% over 1-year."
In another News brief, we quote the Barron's piece, "American Funds' Quiet Rise to Bond Dominance." They write, "The gains reflect a quiet overhaul that has transformed Capital Group, founded in 1931, into a bond giant. The company oversees more than $2 trillion in assets and is largely known for its solid, actively managed stock funds. Still, it has amassed $400 billion in its bond funds, creating one of the largest fixed-income fund families, after Vanguard, BlackRock, Pimco, and Fidelity. It has 18 bond funds; nine are less than 10 years old."
A third News update covers the WSJ article, "Sitting on Bond Profits? Sell, Switch or Wait?" It tells us, "Profits are a good thing, but that doesn't mean it always makes sense to take them. If you've held bonds or bond funds over the past six, 12 or 18 months, you're looking at a sizable capital gain. For example, Vanguard Total Bond Market ETF (BND) rose 7% in the one-year period through June 30, a hefty move for a bond fund."
BFI also features a sidebar that covers Morningstar's piece, "How Short-Term Bond Funds Went Wrong (Again)." They write, "Echoes of the financial crisis reverberated across short-term and ultrashort bond funds in March 2020. Back in 2008, several funds in the short-term bond and ultrashort bond categories that had invested in securitized bonds backed by subprime mortgage loans got caught in a liquidity trap, as falling prices led to heavy redemptions and forced selling. The destruction of value was severe enough to put some funds ... out of business. It was a devastating outcome for investors who believed these vehicles were just a little bit riskier than cash."
Finally, a brief entitled, "Record Inflows in June," says, "Bond fund assets likely saw record inflows in June, after big jumps in May and April (and a huge drop in March). ICI's 'Combined Estimated Long-Term Fund Flows and ETF Net Issuance,' says, 'Bond funds had estimated inflows of $18.78 billion for the week, compared to estimated inflows of $25.06 billion during the previous week [and inflows of $19.0 billion the week before that]. Taxable bond funds saw estimated inflows of $16.46 billion, and municipal bond funds had estimated inflows of $2.32 billion.' Over the past 5 weeks, bond funds and bond ETFs have seen inflows of $114.4 billion."
