The April issue of our Bond Fund Intelligence, which was sent to subscribers Thursday morning, features the lead story, "Worldwide Bond Funds Break $13 Trillion on Jump in US, Lux," which tracks worldwide bond fund flows in the fourth quarter; and "Bond Fund Symposium: State of Funds Strong, But in Flux," which highlights segments from our recent Bond Fund Symposium. BFI also recaps the latest Bond Fund News and includes our Crane BFI Indexes, which show that bond fund returns and yields fell in February. We excerpt from the new issue below. (Note: Please join us next week for an "ESG & Social Money Fund Update," which will take place April 22 from 2-3pm Eastern. Register here for this free event.)
BFI's "Worldwide" piece reads, "Bond fund assets worldwide jumped in the latest quarter to $13.1 trillion, led by the four largest bond fund markets -- the U.S., Luxembourg, Ireland and Germany. We review the ICI's 'Worldwide Open-End Fund Assets and Flows, Fourth Quarter 2020' release and statistics.... The Investment Company Institute compiles worldwide regulated open-end fund statistics on behalf of the International Investment Funds Association (IIFA), the organization of national fund associations. The collection for the fourth quarter of 2020 contains statistics from 46 jurisdictions."
ICI explains, "The growth rate of total regulated open-end fund assets reported in US dollars was increased by US dollar depreciation over the fourth quarter of 2020. For example, on a US dollar–denominated basis, fund assets in Europe increased by 11.9 percent in the fourth quarter, compared with an increase of 6.8 percent on a euro-denominated basis. On a US dollar–denominated basis ... Bond fund assets increased by 6.8 percent to $13.05 trillion in the fourth quarter. Balanced/mixed fund assets increased by 11.6 percent to $7.80 trillion in the fourth quarter, while money market fund assets increased by 3.1 percent globally to $8.31 trillion."
Our BF Symposium recap explains, "Our recent Crane's Bond Fund Symposium, two afternoons of presentations and discussions which focused on the ultra-short bond fund space, featured a presentation on 'The State of Bond Fund Industry.' Our Peter Crane and ICI's Shelly Antoniewicz discussed asset flows and included a host of statistics and charts on bond funds. We quote from some of the highlights below. (Attendees and Subscribers may access the recordings and materials at the bottom of our 'Content' page or via our Bond Fund Symposium 2021 Download Center.)"
It continues, "Crane explains, 'Bond fund assets are now $5.3 trillion, breaking over $5 trillion at the end of last year. Bond ETFs are over $1 trillion now; they broke over $1 trillion last year.... Shelly just ran a new revenue number, $21 billion.... You can see the relentless inflows. You had that brief outflow spike last March, but other than that, it's amazing. It's like the stock market, every time you get a little bit of a correction it seems like it just comes back with a vengeance."
Antoniewicz tells us, "But even despite [last March's] outflows, what we saw for 2020 overall was about $445 billion going into bond funds. That's net new money that doesn't include asset price increases, [and] we had pretty good total returns in the bond market last year. That $445 billion was split pretty evenly between ETFs and mutual funds. Mutual funds had $245 billion come in, and ETFs had around $200 billion. Definitely, the flows were shifted more towards short and intermediate-term. Long-term had small outflows, and that's not surprising [given] the interest rate environment."
A News brief, "Returns Down; Yields Jump in March," tells readers, "Bond fund yields jumped and returns fell again last month. Our BFI Total Index was -0.28% over 1-month but increased 7.56% over 12 months. The BFI 100 fell 0.49% in March but rose 7.04% over 1 year. Our BFI Conservative Ultra-Short Index returned -0.04% over 1-mo and 2.48% over 1-yr; Ultra-Shorts averaged -0.03% in March and 4.18% over 12 mos. Short-Term returned -0.10% and 6.54%, and Intm-Term fell 0.77% last month but rose 5.61% over 1-year. BFI's Long-Term Index returned -1.40% in March and 5.87% over 1-year. Our High Yield Index gained 0.15% in March and 20.04% over 1-yr."
Another News brief quotes ICI's Viewpoint, "Growth in Bond Mutual Funds: A Question of Balance." It asks, "Why have bond mutual funds grown substantially in the past several years? There are two possible explanations, with very different implications: One view: large inflows to bond funds have been driven by yield-seeking or return-chasing behavior. This explanation is promoted by commentators who worry that bond mutual funds could pose financial stability concerns -- who fear that yield-chasing investors are likely to redeem en masse if yields on corporate bonds rise sharply and returns plummet, as might be anticipated during a financial crisis. The alternative view: the growth in bond fund assets has been driven more by fundamental secular trends. If this view is correct, concerns about redemptions should be tempered." (See also ICI's Viewpoint, "Growth in Bond Mutual Funds: See the Whole Picture.")
In a third News update, Barron's writes, "Unconstrained Bond Funds Struggled in Good Times. But Might Be the Answer as Yields Rise." They comment, "Bond investors, who have spent the past decade bemoaning the difficulty of finding yield, are now contending with losses caused by rising yields.... The solution may come from an unloved sector -- unconstrained bond funds."
Finally, another News piece, entitled, "Morningstar Covers 'The First Quarter in Bond Funds,' tells us, 'Rising interest rates unsettle bond markets.... The jump in rates spelled trouble for most fixed-income sectors. For the most part, all but the highest-yielding and least rate-sensitive bond sectors sold off as investors stretched for yield and cut exposure to rising rates. The Bloomberg Barclays U.S. Aggregate Bond Index ... fell 3.4% for the quarter. Ultimately, most fixed-income Morningstar Categories lost ground in the first quarter of 2021. Long government funds trailed the pack with an average fall of 12.8%, while floating-rate bank-loan funds led the way with an average gain of 1.5%."
Contact us if you'd like to see our latest Bond Fund Intelligence and BFI XLS spreadsheet, or our Bond Fund Portfolio Holdings data. (The BFI Holdings ship next week on April 22.) Also, mark your calendars for next year's Bond Fund Symposium, which is scheduled for March 28-29, 2022, in Newport Beach, Calif.
