The September issue of our Bond Fund Intelligence, which was sent to subscribers Friday morning, features the stories, "Rough Year for Short-Term Bond Flows Says MStar, JPM," which reviews how investors are moving out of shorter funds, and "T. Rowe Price: Ultra Short-Term Bond Fund vs. MMFs," which discusses "a strategic or long-term approach to cash investing." BFI also recaps the latest Bond Fund News and includes our Crane BFI Indexes, which show that bond fund returns fell in August while yields rose. 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 lead article "Rough Year for Short-Term Bond Flows Say MStar, JPM" piece states, "While they're some of the only sectors in the bond fund space to show positive returns, Ultra-Short and Short-Term Bond Funds have seen big asset declines over the past year. Conservative Ultra-Short and Ultra-Short BFs have seen assets decline by over 20%, while Short-Term BFs are down almost 13%."
It continues, "Morningstar writes, 'Bond-Fund Investors Are Going Long. Should They?' They explain, 'It's no surprise that money market funds have received $600 billion of net new money.... With the Federal Reserve Bank continuing to raise interest rates, many money market funds now yield over 5%. That's a far cry from essentially nothing, which they paid until recently. Curiously, though, taxable short-term bond funds have suffered net redemptions, despite enjoying similar conditions. Meanwhile, taxable intermediate- and long-term funds have registered impressive inflows.'"
Our "T. Rowe Price" article states, "T. Rowe Price published an update entitled, 'Seeking to Optimize Cash Allocations With Low Duration Bonds,' which discusses cash segmentation and ultra-short bond fund investing. Written by Cheryl Mickel, Alex Obaza and Thomas Heidenberger, it states, 'Low duration bond funds, such as the T. Rowe Price Ultra Short-Term Bond Fund, have provided a sustained yield advantage over time compared with a traditional money market fund. These low duration strategies can take on marginally more credit and interest rate exposure and risk, which creates the potential for compelling returns versus traditional cash management vehicles. This naturally leaves investors asking themselves about the opportunity cost of their cash holdings.'"
It states, "They write, 'In order to capitalize on higher potential returns, an investor can consider a strategic or long-term approach to cash investing. This requires an investor to separate immediate liquidity needs from cash that is not needed for at least 3 to 6 months. Investors can consider an investment product for the latter portion, such as the T. Rowe Price Ultra Short-Term Bond Fund, where they can potentially benefit from higher yield and total return compared with traditional cash alternatives.'"
Our first News brief, "Returns Lower, Yields Higher in August," states, "Bond fund returns fell while yields were higher last month. Our BFI Total Index decreased 0.29% over 1-month but is up 1.77% over 12 months. The BFI 100 fell 0.32% in August but rose 1.03% over 1-year. Our BFI Conservative Ultra-Short Index was up 0.45% over 1-month and is up 4.33% for 1-year; Ultra-Shorts rose 0.51% and are up 4.02% over 12 mos. Short-Term rose 0.33% and 2.07%, and Intm-Term decreased 0.55% and fell 0.72% over 1-year. BFI's Long-Term Index fell 0.87% and 0.92%. High Yield rose 0.35% in August and 6.25% over 1-year."
A second News brief, "Bloomberg on 'Cash-Like ETFs,' quotes from their article, 'Cash-Like ETFs Lure Billions as Traders Shelter From Volatility." It tells us, 'Rising cross-asset volatility in August has sent investors piling into cash-like ETFs at the fastest clip in months. Traders have poured $7 billion into ultra-short bond exchange-traded funds this month, according to data compiled by Bloomberg Intelligence. More than $2 billion of that went to the SPDR Bloomberg 1-3 Month T-Bill ETF (BIL), reversing four months of outflows.'"
Our next News brief is: "Morningstar Features '2 Ultrashort Bond Funds That Benefit From an Inverted Yield Curve.' They comment, 'After spending years in the wilderness of low interest rates, fixed-income investors no longer have to stretch to find yield. An inverted yield curve means that ultrashort bond funds are now yielding almost as much as longer-dated bond funds without the interest-rate risk, presenting an attractive opportunity for income investors.... While ultrashort bond funds are yielding almost as much if not more than their core-plus bond counterparts with a fraction of the duration risk, they could be worth a look. These conservative funds can also provide some downside protection during periods of stress in credit markets. Let's explore two ultrashort bond funds that look attractive.... Fidelity Conservative Income Bond (FCNVX) [and] Pimco Short-Term (PSHAX).'"
Another brief, "Hartford Funds on Bonds vs. Cash," asks, 'Cash vs. Fixed Income: Time to Trade Up?' It says, 'If you held money in money-market accounts or certificates of deposit (CDs) instead of bonds over the past 12 months, you're probably feeling pretty good about yourself. Trailing returns on cash-equivalent investments are approximately 3.59% vs. -0.94% for core bonds. Year-to-date, the returns are somewhat similar.... However, history would suggest that yield curves don’t stay inverted forever, and cash rarely outperforms fixed income in the long run.... If history is any guide, longer-dated rates will eventually be higher than shorter-date rates. Not surprisingly, many investors are now considering ways to get ahead of a possible momentum shift and make the move from cash to core bonds. They're also wondering about the risks of being wrong: What if rates continue to rise?'"
A BFI sidebar, "FT: PIMCO Preps for Harder," says, "The FT published, 'Bond fund giant Pimco prepares for 'harder landing' for global economy.' It tells us, 'The world's largest active bond fund manager says markets are too optimistic about central banks' ability to dodge a recession as they battle inflation in the US and Europe. Daniel Ivascyn, chief investment officer at Pimco, which manages $1.8tn of assets, said he was preparing for a 'harder landing' than other investors while top central bank chiefs prepare to continue their campaign of interest rate rises.'"
Finally, another sidebar, "Gross on Gundlach," comments, "Bloomberg writes, 'Bill Gross Blasts Gundlach: To Be Bond King, You Need a Kingdom.' They explain, 'When it comes to whether there’s a new bond king in town, Bill Gross is sure of one thing: Jeffrey Gundlach certainly does not carry the crown. The money manager -- widely known by the moniker 'The Bond King' for having built Pacific Investment Management Co. over many decades into a fixed-income giant -- didn't mince words against the billionaire founder of DoubleLine Capital, whose investment success he downplayed. 'First of all, to be a bond king or queen, you need a kingdom,' Gross said at a live recording of the Odd Lots podcast at the Future Proof conference.... 'Pimco had $2 trillion, ok? DoubleLine's got like $55 billion. Come on -- that's no kingdom, that's like Latvia or Estonia.'"
