The August issue of our Bond Fund Intelligence, which was sent to subscribers Friday morning, features the lead story, "Bond Fund Inflows Slow; Long-Term, TIPs See Gains," which reviews the latest on asset flows into funds; and "Paper Asks: Are Bond Funds Riskier Than They Seem?," which quotes from a recent Journal of Finance work. BFI also recaps the latest Bond Fund News and includes our Crane BFI Indexes, which show that bond fund returns jumped again in July while yields fell. We excerpt from the new issue below. (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.)
BFI's "Inflows" piece reads, "Bond funds and bond ETFs continue to see inflows, though they've clearly begun slowing. ICI's 'Combined Estimated Long-Term Fund Flows and ETF Net Issuance,' says, 'Bond funds had estimated inflows of $7.85 billion for the week, compared to estimated inflows of $12.88 billion during the previous week. Taxable bond funds saw estimated inflows of $5.62 billion, and municipal bond funds had estimated inflows of $2.23 billion.' Over the past 5 weeks, bond funds and bond ETFs have seen inflows of $42.1 billion."
It continues, "The latest 'Trends in Mutual Fund Investing - June 2021' shows bond fund assets up $72.1 billion, 1.3%, to $5.513 trillion in June, after rising $41.7 billion in May and $96.2 billion in April. Over the 12 months through 6/30/21, bond fund assets have risen by $795.4, or 16.9%. The number of funds rose by 2 in June to 2,118, but is down 13 over a year."
The Misclassification article explains, "The Journal of Finance published the study, '`Don't Take Their Word for It: The Misclassification of Bond Mutual Funds,' which explains, 'We provide evidence that bond fund managers misclassify their holdings, and that these misclassifications have a real and significant impact on investor capital flows. The problem is widespread, resulting in up to 31.4% of funds being misclassified with safer profiles, compared to their true, publicly reported holdings. 'Misclassified funds' -- those that hold risky bonds but claim to hold safer bonds -- appear to on-average outperform lower risk funds in their peer groups. Within category groups, misclassified funds receive more Morningstar stars and higher flows. However, when we correctly classify them based on actual risk, these funds are mediocre performers."
It states, 'In this paper, we show that for one of the largest markets in the world, namely, U.S. fixed-income debt securities, this has led to large information gaps that have been filled by strategic-response information provision by funds. In particular, we show that the reliance on (and by) the information intermediary has resulted in systematic misreporting by funds. This misreporting has been persistent, widespread, and appears strategic, casting misreporting funds in a significantly more positive position than is actually the case. Moreover, the misreporting has a real impact on investor behavior and mutual fund success."
A News brief, "Returns Up Again, Yields Lower in July," explains, "Bond fund returns rose and yields were down again last month. Our BFI Total Index rose 0.58% in 1-month and 3.35% for 12 months. The BFI 100 rose 0.76% in July and 3.13% over 1 year. Our BFI Conservative Ultra-Short Index was up 0.02% for 1-mo and 0.45% for 1-yr; Ultra-Shorts averaged 0.02% in July and 1.33% over 12 mos. Short-Term increased 0.22% and rose 2.52%, and Intm-Term rose 0.94% in July and 2.11% over 1-year. BFI's Long-Term Index rose 1.31% in July and 1.48% over 1-year. Our High Yield Index rose 0.22% in July and 9.53% over 1-year.
Another News brief quotes Barron's article, "How a $75B Core Bond Fund Is Gearing Up for Inflation." They write, "To satisfy some clients' income needs, bond-fund managers may reach for yield.... Pramod Atluri, however, isn't forgetting the reasons people still want bonds in their portfolios. The portfolio manager of the $75 billion American Funds Bond Fund of America (ABNDX) and his team maintain a philosophy that fixed income has four roles: income, capital preservation, inflation protection, and diversification. As an intermediate-term core bond-fund manager, Atluri, 45, aims to meet all four goals."
A third News update covers The Wall St. Journal's "Chinese Bond Swings Threaten Global Debt Investors." They tell us, "Policy moves in Beijing are hitting Chinese corporate bonds and rippling across global markets through the U.S. and European money managers who loaded up on the securities in recent years. Emerging-markets investors have long been subject to such shocks, but Chinese bonds are now so widely held that swings in their prices are affecting even bond funds that don't specialize in developing countries, including funds managed by firms such as Pacific Investment Management Co. and BlackRock Inc. Global bond funds with the most Chinese corporate debt lagged behind their benchmark indexes over the month that ended last Thursday."
Finally, a sidebar entitled, "Vanguard to Launch Core-Plus, Multi-Sector Bond Fund," explains, "Vanguard filed to launch Core-Plus Bond Fund and Vanguard Multi-Sector Income Bond Fund according to a press release. It says, 'Vanguard ... filed initial registration statements with the U.S. Securities and Exchange Commission to introduce two new active fixed income funds: Vanguard Core-Plus Bond Fund and Vanguard Multi-Sector Income Bond Fund. The funds are designed to meet the needs of clients seeking actively managed 'core' and 'satellite' bond portfolios and will augment the lineup of higher-alpha, diversified fixed income strategies managed by Vanguard Fixed Income Group."
