As we discussed in Monday's News, Crane Data hosted its Bond Fund Symposium last week in Newport Beach, Calif. BFS brings together ultra-short bond fund managers, issuers, dealers and investors to discuss a number of short-term fixed-income investment topics. Today, we quote from the opening session, "State of the Bond Fund Marketplace," which featured the Investment Company Institute's Shelly Antoniewicz and Crane Data's Peter Crane. The two discussed and presented statistics on bond fund flows, returns, regulations and recent events. Thanks again to those who attended and supported BFS! Attendees and Crane Data subscribers may access the Powerpoints, recordings and conference materials at the bottom of our "Content" page or via our Bond Fund Symposium 2022 Download Center. (Mark your calendars for Crane's Money Fund Symposium, June 20-22, 2022 in Minneapolis, Minn., and for next year's Bond Fund Symposium, March 23-24, 2023, in Boston, Mass.)
Antoniewicz comments, "For years and years, we had bond prices rising, rates falling, strong capital gains on bond funds and very, very strong inflows. Then all of a sudden, everything turned around. We had very small capital losses last year on bond funds. Flows sort of held up.... But moving into this year, we had much deeper capital losses on bond funds and flows are turning negative."
She explains, "Growth in bond and money market fund assets in the first part of this year has dropped off.... We peaked around $6.9 trillion in bond fund assets, that's bond funds and ETFs added together, at the end of 2021. Then ... through January we were down to $6.7 trillion. When we publish our February data this week, it's going to be lower, because we had outflows and we also are experiencing deeper capital losses. (ICI's February month-end data shows bond fund assets at $5.415 trillion and bond ETFs at $1.195 trillion, or $6.610 trillion total.)
The ICI economist tells us, "If you look back at yearend 2018 and you move to where we are now as of January 2022, we still have 43% growth in bond fund assets, and that's all coming from capital gains. We've had extremely, extremely strong inflows to bond funds over the past four or five years.... We may get into this in the regulatory session tomorrow. But one thing that sort of perks up regulators heads is if we see extremely fast growth in an asset class, and bond funds are one of those asset classes they are very concerned about."
She also says, "One thing we like to point out at ICI is, yes, we've had strong growth in bond funds, but we also have had strong growth in corporate issuance and the outstanding amount of corporate debt.... You've got two things going on there. Since year-end 2018, the share of the outstanding corporate debt held by bond mutual funds and bond ETFs has only risen from 21% to 24%, so that 43% growth only translated into a higher share of outstanding corporates by three percentage points. So that is something we always like to put into perspective."
Antoniewicz adds, "Given we've got this rising rate environment, fund investors are very concerned about duration right now. So where are ... mutual fund assets sitting? Most of it is sitting in Intermediate-Term, and Intermediate-Term sort of for us is in a 3-to-10-year range. Short-Term is less than 3 [years] and long-term is greater than 10. You do have a lot of the assets sitting in a range where bond fund investors are going to experience these capital losses."
Finally, she states, "One thing we like to do when we do this using Morningstar data is to look at the durations of the different types of bond funds that are out there. You can see that High-Yield has the lowest at 3.5 years, and the longest, of course, is Long-Term U.S. Government, which is close to 17 years. I think what's interesting to me always is if you look towards the middle, they're active investors. So active bond fund managers seem to have a lot lower durations. The have much more flexibility being able to lower their durations in different times of environments. Their asset-weighted average duration of 4.4 years and for index funds it is 6.4 years, extremely close to the Bloomberg index."
In other news, Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics Tuesday, which track a shifting subset of our monthly Portfolio Holdings collection. The most recent cut (with data as of April 1) includes Holdings information from 63 money funds (up from 57 two weeks ago), which represent $2.168 trillion (up from $1.772 trillion) of the $4.977 trillion (43.6%) in total money fund assets tracked by Crane Data. (Our Weekly MFPH are e-mail only and aren't available on the website. See our March 10 News, "March MF Portfolio Holdings Flat: Repo Inches Higher, Treasuries Lower," for more.)
Our latest Weekly MFPH Composition summary again shows Government assets dominating the holdings list with Repurchase Agreements (Repo) totaling $1.048 trillion (up from $851.4 billion two weeks ago), or 48.4%; Treasuries totaling $824.8 billion (up from $706.3 billion two weeks ago), or 38.1%, and Government Agency securities totaling $119.3 billion (up from $119.1 billion), or 5.5%. Commercial Paper (CP) totaled $59.2 billion (up from two weeks ago at $36.2 billion), or 2.7%. Certificates of Deposit (CDs) totaled $38.9 billion (up from $16.2 billion two weeks ago), or 1.8%. The Other category accounted for $54.1 billion or 2.5%, while VRDNs accounted for $22.9 billion, or 1.1%.
The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $824.8 billion (38.1% of total holdings), the Federal Reserve Bank of New York with $679.7B (31.4%), Fixed Income Clearing Corp with $58.9B (2.7%), Federal Home Loan Bank with $49.4B (2.3%), BNP Paribas with $49.0B (2.3%), Federal Farm Credit Bank with $41.8B (1.9%), RBC with $34.0B (1.6%), Societe Generale with $24.5B (1.1%), Mitsubishi UFJ Financial Group Inc with $19.2B (0.9%) and Federal National Mortgage Association with $19.0B (0.9%).
The Ten Largest Funds tracked in our latest Weekly include: JPMorgan US Govt MM ($249.2B), BlackRock Lq FedFund ($172.1B), Morgan Stanley Inst Liq Govt ($142.3B), Allspring Govt MM ($133.3B), Fidelity Inv MM: Govt Port ($125.0B), Dreyfus Govt Cash Mgmt ($119.3B), BlackRock Lq T-Fund ($117.7B), BlackRock Lq Treas Tr ($112.8B), First American Govt Oblg ($92.3B), and JPMorgan 100% US Treas MMkt ($89.9B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary, or our Bond Fund Portfolio Holdings data series.)
