The March issue of our Bond Fund Intelligence, which will be sent to subscribers Tuesday morning, features the stories, "Latest on Sustainable, ESG Bond Funds: Ultra-Short Hot," which reviews recent news on ESG funds, and "McNerny & Schneider Talk Ultra-Shorts on ETF Edge," which excerpts from a recent CNBC ETF Edge interview. BFI also recaps the latest Bond Fund News and includes our Crane BFI Indexes, which show that bond fund returns plunged in February while yields jumped. 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: Please join us for Crane's Bond Fund Symposium, which will be held next week, March 23-24, 2023, in Boston, Mass.)
Our "ESG Bond Funds" article says, "The Wall Street Journal published an article entitled 'Sustainable Funds Dodged Outflows in 2022 Market Rout,' which says, 'Sustainable funds that invest based on factors such as companies' carbon footprints and workforce diversity attracted new investment in 2022, despite a broad market selloff that punished many sectors. Investments into U.S. sustainable funds including stocks, bonds and other categories fell to $3.1 billion in 2022 from $69.2 billion a year earlier, according to Morningstar. Conventional funds that don't consider environmental, social or governance factors, also known as ESG, suffered more than $370 billion in withdrawals last year.'"
It continues, "The article tells us, 'Fixed-income funds accounted for $2.4 billion of all sustainable investment inflows, or about 75%, a surprising performance given how rising interest rates have punished many bondholders. Morningstar identified 129 sustainable bond funds last year, up from 47 in 2018. Sustainable products benefit from a flood of capital chasing greener investments in response to a warming planet, while governments and regulators increasingly are setting ambitious climate targets pushing companies to shrink their carbon footprints.'"
Our "McNerny & Schneider" piece states, "CNBC's show 'ETF Edge' recently featured PIMCO's Jerome Schneider and J.P. Morgan Asset Management's James McNerny on a segment entitled, 'Active ETFs are making a comeback.' They discuss, 'Bond ETFs are bouncing back this year. Here's why.' (Note: Both Schneider and McNerny will be speaking at next week's Bond Fund Symposium in Boston.)"
It continues, "Schneider explains, 'We still foresee, at PIMCO, 3% core CPI as we end 2023. So, it's still elevated beyond the FOMC's current comfort zone. But I think where that ultimately leads to is a bit of uncertainty leading investors to think about ... how to insulate portfolios.... Just look at what's happened over the past four weeks of trading. We've had rates rally, rates sell off, all things corresponding to the uncertain outlook between the divergence of market views, between the market itself and the Federal Reserve.'"
Our first News brief, "Returns Fall, Yields Jump in February," which says, "Bond fund returns plunged and yields jumped last month. Our BFI Total Index fell 1.49% over 1-month and is down 5.39% over 12 months. The BFI 100 fell 1.72% in Feb. and lost 6.74% over 1-year. Our BFI Conservative Ultra-Short Index was up 0.20% over 1-month and is up 1.36% for 1-year; Ultra-Shorts rose 0.12% and are up 0.56% over 12 mos. Short-Term returned -0.74% and -2.85%, and Intm-Term fell 2.22% and -8.69% over 1-year. BFI's Long-Term Index fell 2.60% and -11.13%. High Yield fell 0.90% in Feb. and fell 3.74% over 1-year."
A second News brief, "WSJ's 'Welcome to the 5% World, Where Yield Chases You' says, 'Bonds are getting beaten down again. That means they can do a better job of protecting the rest of your portfolio.... Investors have resumed worrying the Federal Reserve will have to crank up interest rates higher and longer to stifle inflation, after dismissing such fears a few short weeks ago. So long-term Treasury securities have lost about 5% so far this month, and the bond market as a whole is off about 3%. That dark cloud has several layers of silver lining.'"
Another brief, "Morningstar's '5 Short-Term Bond Funds That Disappointed Investors' tells us, 'Investors expect short-term bond funds to be a haven during times of rising interest rates and turmoil in the markets. But when fund managers take on riskier bets in search of higher yields, that can backfire.... During last year's beatdown in the bond market, even conservatively managed short-term bond funds lost money. The average fund in the short-term bond Morningstar Category posted a 5.2% decline, the biggest ... decline in history, according to Morningstar Direct.' The funds mentioned include: Mass Mutual Short Duration Bond (MSTZX), Thompson Bond (THOPX), PGIM Short-Term Corporate Bond (PBSMX), Thornburg Limited Term Income (THRLX) and American Funds Intermediate Bond Fund of America (RBOGX)."
A BFI sidebar, "Bloomberg on 'Cash' ETFs," says, "Bloomberg Intelligence posted a note entitled, 'Cash Is King: 'Cash' Hoarding Grows to Record in ETFs as Distributions Rise.' They write, 'Assets in cash-like ETFs have climbed to a record $87 billion after one their best months of flows. Cash alternatives like the SPDR Bloomberg 1-3 Month T-Bill ETF have outperformed 90% of all ETF strategies over the past 12 months, and increased distribution payouts are luring more investors deterred by equity-market volatility.'"
Finally, another sidebar, "MStar on 5 Ultra-Shorts," says, "Morningstar's '5 Ultra-Short-Term Bond Funds With High Yields' tells us 'For the first time in years, investors have more choices when looking for a place to store cash that is both low-risk and paying high yields. One of those options: `ultra-short-term bond funds. After 8 interest-rate hikes from the Federal Reserve, short-term rates have risen to decadelong high levels. The average fund in the ultrashort Morningstar Category currently yields around 4.2%; a year ago, it yielded less than 1%. As investors experienced quite painfully in 2022, when interest rates rise, bond prices fall. But an ultra-short-term bond fund limits the sensitivity to changes in interest rates.'"
