The May issue of our Bond Fund Intelligence, which was sent to subscribers Friday morning, features the lead story, "BNY Mellon Files for Ultra-Short ETF; Short ETFs Hot," which covers launches in the bond ETF space; and "ICI's 2021 Fact Book Reviews '20 Bond Fund Trends, Flows," which highlights bond fund sections from the latest ICI Fact Book. BFI also recaps the latest Bond Fund News and includes our Crane BFI Indexes, which show that bond fund returns jumped while yields fell in April. We excerpt from the new issue below. (Note: Please join us next week for our "Handicapping Money Fund Reforms" webinar, which will take place Thursday, May 20 from 2-3pm Eastern.)
BFI's "Ultra-Short and ETF" piece reads, "A new SEC filing for BNY Mellon Launching Ultra Short ETF is the latest sign of interest in the ultra-short and ETF space. We've seen a number of launches and announcements over the past year, including Vanguard Ultra-Short Bond ETF and Federated Hermes Conservative Microshort Fund. We've even seen launches in Europe and in the ESG space like Amundi's Euro Ultra-Short Maturity Corporate Bond ESG ETF, and we've seen plenty of other ETF launches, like Fidelity Investment Grade Bond ETF and John Hancock Corporate Bond ETF. (See also our February BFI, 'Launches in Ultra-Short Space Indicate Sector Heating Up.')"
BNY's filing tells us, "The fund seeks high current income consistent with the maintenance of liquidity and low volatility of principal." It will invest in "investment grade, U.S. dollar denominated fixed, variable, and floating rate debt or cash equivalents," including: corporates; ABS, repo; CP, CDs, BAs and TDs; U.S. Treasury securities and Agencies. "The fund's portfolio ... will have an average credit rating of A or equivalent [and its] investments, at the time of purchase, will have a minimum short-term credit rating of P-2, A-2 or F2."
Our Fact Book article explains, "The Investment Company Institute recently published its '2021 Investment Company Fact Book,' which contains a review of the bond fund marketplace in 2020 and a wealth of statistics on bond funds. They write, "Combined net sales of bond funds and mixed/other funds have generally been strong over the past decade ... which can partially be explained by the aging of the global population.... Because returns on bonds tend to be less variable than those on stocks, returns on bond funds ... tend to be less variable than those of equity funds."
ICI's section on "Bond Mutual Funds" (on page 76) explains, "Bond mutual fund net new cash flows typically are correlated with the performance of US bonds ... which, in turn, is largely driven by the US interest rate environment. Long-term interest rates fell sharply in the first quarter of 2020 and finished the year substantially lower than they were at the beginning of the year.... For the year as a whole, the total return on US bonds was 8 percent."
A News brief, "Returns Jump, Yields Fall In April," tells readers, "Bond fund returns rebounded and yields fell last month. Our BFI Total Index rose 0.57% in 1-month and 6.82% in 12 mos. The BFI 100 rose 0.65% in April and 5.93% over 1 year. Our BFI Conservative UltraShort Index was up 0.03% over 1-mo and 1.42% over 1-yr; Ultra-Shorts averaged 0.07% in April and 3.13% over 12 mos. Short-Term increased 0.30% and 5.14%, and Intm-Term rose 0.58% last month and 4.36% over 1-year. BFI's Long-Term Index jumped 0.66% in April and 4.24% over 1- year. Our High Yield Index jumped 0.89% in April and 17.07% over 1-year."
Another News brief quotes the Federal Reserve's "May Financial Stability Report." It writes, "Mutual funds that invest substantially in corporate bonds and bank loans may be particularly exposed to liquidity transformation risks.... U.S. corporate bonds held by mutual funds increased substantially to $1.8 trillion in [Q4] 2020, well above prepandemic levels and about one-sixth of outstanding U.S. corporate bonds…. The record outflows in March 2020 from mutual funds ... highlighted the structural vulnerabilities in the sector, because some were forced to sell assets even when the corresponding markets were illiquid. Since then, mutual funds have benefited from sizable overall inflows amid improved investor sentiment and ... emergency credit facilities."
A third News update covers, Federated Hermes Q1'21 Earnings Call. It begins, "President & CEO, Christopher Donahue, comments, 'Turning to fixed income, assets reached another record high of $86 billion at the end of the first quarter, up more than $2 billion from year-end and up $22 billion, or 34%, since the first quarter of last year. The Q1 growth was again driven by strong net sales of just under $3 billion.... Q1 net fund sales leaders were ultra-short bond fund was about $1.6 billion, the multi-sector total return bond and short intermediate total return ... combined for nearly $600 million, and continued strong results in high yield was nearly $400 million.'"
Finally, another News piece, entitled, "Morningstar Writes 'Pulling Back the Curtain on the 'People Pillar' Rating of Bond Funds," tells us, "Measuring the strength and weakness of an investment team is one of the core responsibilities of Morningstar's Manager Research team. Good investment teams are appropriately staffed for the strategies they manage, demonstrate good judgment over time, and act in the best interests of their clients. A poor investment team may be mis-staffed, misaligned, or misbehaving. The difference can have a material impact on investment outcomes. Indeed, the People Pillar rating is an integral part of the Morningstar Analyst Rating.... So, let's take a deep dive through the People Pillar rating, especially as it relates to bond funds.”
Contact us if you'd like to see our latest Bond Fund Intelligence and BFI XLS spreadsheet, or our Bond Fund Portfolio Holdings data. Also, mark your calendars for next year's Bond Fund Symposium, which is scheduled for March 28-29, 2022, in Newport Beach, Calif.
