The October issue of our Bond Fund Intelligence, which will be sent to subscribers Friday morning, features the stories, "Worldwide BF Assets Drop to $11.9 Trillion, Led by U.S.," which reviews ICI's latest global bond fund statistics, and "EMFS: Soetan, Belfaida & Fleury on European USBFs," which reviews the session on ultra-short bond funds at our recent European conference. BFI also recaps the latest Bond Fund News and includes our Crane BFI Indexes, which show that bond fund returns plunged again in September while yields rose for the 12th straight month. 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.)
Our "Worldwide BF Assets" article says, "Bond fund assets worldwide decreased moderately in the latest quarter to $11.9 trillion, led by the four largest bond fund markets -- the U.S., Luxembourg, Ireland and China. We review the ICI's 'Worldwide Open-End Fund Assets and Flows, Second Quarter 2022' release and statistics below."
It continues, "ICI's report says, 'Worldwide regulated open-end fund assets decreased 11.5% to $59.91 trillion at the end of the second quarter of 2022.... The Investment Company Institute compiles worldwide regulated open-end fund statistics on behalf of the International Investment Funds Association (IIFA)."
Our "EMFS on European USBFs" piece states, "Crane Data hosted its European Money Fund Symposium two weeks ago in Paris, and while the event focused on money funds domiciled outside the U.S. there was a session on 'Ultra-Short Bond Funds & Standard MMFs.' This segment featured Fitch Ratings' Abis Soetan, Aviva Investors' Mhammed Belfaida and BNP Paribas Asset Management's Marc Fleury. Soetan says, I'm going to do a market overview [and] define the space we're talking about. `We'll discuss what's going on in markets and how that is impacting flows. I'm going to compare the different types of funds used in cash segmentation strategies. Then I'll go through the rating criteria. Based on ratings profile of these funds, how are they different? What should you be looking at in the region to understand a fund's risk profile?'"
It states, "He continues, '[In Europe you have the] short-term money market funds and standard money market funds. These fall under EU money market fund regulation. That just means that there's a limitation on how much these funds can take in terms of credit risk, market risk and liquidity risk.... For credit risk, it needs to be 'favorable credit quality,' and favorable means different things to different managers. I'll say generally it means investment grade.' (Europe's 'Standard MMF' category is similar to our 'Conservative Ultra-Short' category in the U.S.)"
Our first News brief, "Returns Get Uglier; Yields Keep Rising," says, "Bond fund returns crashed yet again in September while yields rose for the 12th month in a row. Our BFI Total Index fell 3.238% over 1-month and fell 10.50% over 12 months. The BFI 100 lost 3.61% in Sept. and lost 11.57% over 1-year. Our BFI Conservative Ultra-Short Index was down 0.07% over 1-month and down 0.63% for 1-year; Ultra-Shorts fell 0.50% and 2.11%. Short-Term returned -1.81% and -6.40%, and Intm-Term fell 4.32% in Sept. and 13.69% over 1-year. BFI's Long-Term Index fell 5.18% and 17.27%. High Yield fell 3.59% in Sept. and 11.15% over 1-year."
A second News brief, "Kiplinger's Says, 'Bond Funds Turbocharge Payouts,' explains, 'The typical short-term taxable bond fund has lost a hard-to-swallow 4% to 6% this year through Sept. 9. Fast-climbing interest rates exacted this heavy cost, usurping two years or more of yield.... Monthly payouts from the 10 largest such bond funds are riding a rocket ship, nearly doubling ... with more raises to come.'"
Another brief, "Morningstar's 'Turbulent September Markets Put ETF Investors on Defense,' says, 'September lived up to its reputation as the worst month of the year for investors.... Bonds offered little stability. The Morningstar US Core Bond Index pulled back 4.43%, its deepest one-month drawdown in over 20 years of live and back-tested performance.... Investors' desire for stability made short-dated U.S. Treasury funds a popular choice and helped fixed-income funds reel in $13.3 billion last month.'"
A BFI sidebar, "Barron's Likes Short-Term BFs, quotes from the piece, 'Short-Term Bonds Yield 4%. Why They Could Beat Cash.' It explains, 'Until recently, short-term bonds were a yield wasteland: A two-year Treasury note yielded 0.21% a year ago and just 1% in January. Today, the yield is over 3.8% and could soon touch 4%, thanks in good measure to the Federal Reserve's aggressive interest-rate-hiking campaign.... But this could be a good entry point for short-term bonds: They may not fall much more, and yields are now high enough to withstand some price pressure. 'We are actually comfortable owning the front end of the yield curve here,' says Bob Miller, head of fundamental fixed income at BlackRock.'"
Finally, another sidebar, "BF Assets Plunge in Sept.," tells readers, "Bond fund assets plummeted in Sept. after falling in August. Assets have fallen hard in 8 out of 9 months in 2022. Total assets fell by $113.8 billion to $2.652 trillion last month, according to BFI. YTD, assets are down $673.4 billion (through 9/30/22), and over 1-year they’re down $685.3 billion, or –20.5%."
