The October issue of our Bond Fund Intelligence, which was sent to subscribers Thursday morning, features the lead story, "Worldwide Bond Funds Jump $820B in Q2'20 to $11.6 Trillion," which discusses the latest jump in bond fund assets globally, and "Lord Abbett Rules in Short-Term Bond Kingdom," which interviews Portfolio Manager and MD Yoana Koleva. BFI also recaps the latest Bond Fund News and includes our Crane BFI Indexes, which show that bond fund yields were higher and returns were lower 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 Worldwide piece reads, "Bond fund assets worldwide skyrocketed by $816.9 billion in Q2'20 to $11.6 trillion, driven higher by increases in the U.S., Luxembourg and Ireland. Brazil was the only major country showing a decrease in the latest quarter. We review the ICI's 'Worldwide Open-End Fund Assets and Flows, Second Quarter 2020' release and statistics below."
ICI says, "Worldwide regulated open-end fund assets increased 12.4% to $53.87 trillion at the end of the second quarter of 2020.... The Investment Company Institute compiles worldwide regulated open-end fund statistics on behalf of the International Investment Funds Association (IIFA).... On a US dollar-denominated basis ... bond fund assets rose by 7.5% to $11.63 trillion in the second quarter. Balanced/mixed fund assets increased by 10.7% to $6.48 trillion.... Money market fund assets rose by 6.1% to $8.16 trillion."
Our latest Fund Profile says, "This month, BFI profiles Yoana Koleva, Managing Director at Lord Abbett and Portfolio Manager of Lord Abbett Ultra Short Fund. The Jersey City-based manager runs the largest Ultra-Short Bond Fund and second largest Short-Term Bond Fund and ranks 12th overall in our bond fund family rankings. Koleva discusses the firm's history, the fund's strategies and a number of other topics in the ultra-short space. Our Q&A follows."
BFI says, "Give us a little history." Koleva responds, "Lord Abbett was actually founded back in 1929, so we've been around for a very long time. Within the short duration space, we also have a very long history and a pretty significant presence. Our Short Duration Income Fund was launched in early 2008. We invest in short-term, credit-oriented securities and the goal is to generate strong, consistent returns with low volatility. We have a multi-sector approach where we invest in investment grade, high yield corporate securities, CMBS and ABS, and the way we add value is through sector rotation and security selection. Currently, the short duration strategy has over $60 billion in assets."
She continues, "Given our experience and our success in short duration, in 2016 we decided to launch our Ultra Short Bond product. If you recall, 2016 was the year when we had a major change in the regulatory landscape driven by the Money Market Reform. We believe that created an opportunity for a new product. You saw significant outflows from the Prime money market space as gates and floating NAVs were introduced. Prime money markets dropped by nearly $1 trillion driven by investor outflows and fund conversions into government money market funds. For the investor that focuses on principal preservation and return above Treasuries there were really very limited opportunities. We saw that market dynamic and identified it as an opportunity for the ultra short space. We currently manage over $20 billion in assets in the space, so it's been a huge success."
Our Bond Fund News includes the brief, "Yields Up, Returns Dip in September," which explains, "Bond fund yields inched higher while returns were mostly lower last month. Our BFI Total Index returned -0.12% over 1-month and 3.83% over 12 months. The BFI 100 fell 0.10% in Sept. but rose 4.80% over 1 year. Our BFI Conservative Ultra-Short Index returned 0.05% over 1-mo and 1.75% over 1-yr; Ultra-Shorts averaged 0.10% in Sept. and 1.78% over 12 mos. Short-Term returned -0.02% and 3.33%, and Intm-Term fell 0.04% last month and 6.14% over 1-year. BFI's Long-Term Index fell by 0.17% in Sept. but rose 7.94% for 1-year. Our High Yield Index fell 0.57% last month and is up just 1.54% over 1-year."
In another News brief, we quote the Economic Times', "Bonds Suck in $26B, Pricing in US Democrats Win," which says, "Bond funds have seen the second-largest weekly inflows ever of $25.9 billion, BofA said on Friday, as the market continues to price in a Democrats victory.... Riskier high yield bond funds attracted $5 billion in the week to Oct. 7, the highest in 11 weeks, while government bond funds sucked in $3.8 billion, the largest inflows in 14 weeks."
A third News update tells readers, "The SEC Published, 'U.S. Credit Markets: Interconnectedness and the Effects of the COVID-19 Economic Shock' (and hosted a Roundtable Oct. 14). It says, 'Though many observers have been concerned about the ability of bond funds to access liquidity to meet redemption requests during periods of market stress, these concerns did not materialize during the market turmoil in March. Commission staff estimate that bond mutual funds experienced $255 billion of net outflows during March 2020, with another $21 billion in outflows from bond ETFs.' ICI also published, 'The Impact of COVID-19 on Economies and Financial Markets.'"
BFI also features a sidebar entitled, "Barron's on Best Bond Funds." Their article, 'The Best Bond Funds for Uncertain Times.' explains, 'The drastic changes in the fixed-income market in recent months -- largely driven by the Federal Reserve's signaling that interest rates will stay near zero until 2023 ... -- necessitates a reassessment of bond portfolios.... With CDs and money markets paying nothing, income investors tend to gravitate toward short- or ultrashort-term bond funds. But many of these have taken on credit risk to bolster their yields, so they took bigger losses at the height of the crisis than most investors would expect from their 'safe' investment bucket, says Morningstar analyst Garrett Heine.'"
Finally, a brief entitled, "BF Inflows Slow, Then Jump," explains, "Bond funds continue to see strong inflows and asset gains, but they paused briefly in late September. ICI's 'Combined Estimated Long-Term Fund Flows and ETF Net Issuance,' says, 'Bond funds had estimated inflows of $25.02 billion for the week, compared to estimated inflows of $4.40 billion during the previous week [and $5.04B the prior week]. Taxable bond funds saw estimated inflows of $22.54 billion, and municipal bond funds had estimated inflows of $2.48 billion.' Over the past 5 weeks, bond funds and bond ETFs have seen inflows of $63.3 billion.'"
