Breaking News
0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Bond Funds Remain Significant Attractors Of Investors’ Assets Despite Inflation

By Refinitiv Lipper (Tom Roseen)BondsSep 12, 2021 03:22AM ET
www.investing.com/analysis/bond-funds-remain-significant-attractors-of-investors-assets-despite-inflation-200601627
Bond Funds Remain Significant Attractors Of Investors’ Assets Despite Inflation
By Refinitiv Lipper (Tom Roseen)   |  Sep 12, 2021 03:22AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

Most pundits expect the Federal Reserve Board to start a gradual withdraw of its easy money policies in the near term. And while Fed Chair Jerome Powell stated at the end of the annual Jackson Hole Economic Symposium on Aug. 27, 2021, “if the economy evolved broadly as anticipated, it could be appropriate to start reducing the pace of asset purchases this year,” he reiterated that the decision to taper the Fed’s $120 billion monthly asset purchases doesn’t mean it will be raising interest rates at the same time.

Bond investors have eagerly awaited news on the proposed timing of the Fed’s plans to begin tapering and have been looking for hints of when rates may start to rise. The combination of low interest rates and signs of rising inflation have investors concerned. The prospects of higher interest rates, while eagerly awaited, is a double-edged sword that will cause the value of current bonds to decline. Recall the inverse relationship between interest rates and bond prices. Most bond investors are hoping that the inevitable rate hikes occur at a slow enough pace that the extra added yield will compensate for the decline in value—from a bond fund perspective.

On Friday, Sept. 3, the Department of Labor threw a wrench into the works after reporting the U.S. economy added just 235,000 jobs in August, far lower than the 720,000 forecasted by analysts. While some investors viewed the report as a reason for the Federal Reserve to delay its long-anticipated plan to taper its asset purchases, others were concerned by the combination of a slowdown in hiring with a surge in wage growth—a worrisome combination for the economy.

Most fixed income investors are not sure how to prepare for the end of a 40-year bull market in bonds. Until recently, bond investors have benefitted from declines in interest rates and low relative inflation, leading to both capital gains and income distributions contributing to total returns for bond funds. And that is possibly on the verge of change.

With the graying of America, the proportional asset allocation away from stock funds (including ETFs) and into bond funds has grown considerably—rising from just a little less than 14% (+$1.4 trillion) of all assets under management in the U.S. fund business for 2008 to almost 20% (+$6.6 trillion) in 2021—see the dark blue segments in the chart below. Much of this now is on autopilot with automatic monthly investments into 401(k) and other qualified plans earmarked toward fixed income mutual funds and ETFs.

TNA-All Fund by Macro Group 1990 YTD 2021
TNA-All Fund by Macro Group 1990 YTD 2021

Even as pundits continue to raise the alarm of the impact rising interest rates might have on bond funds, investors continue to inject net new money into both taxable and tax-exempt bond funds, with the former being a primary attractor of investors’ assets in eight of the last 11 years, including through Q2 2021.

Yearly YTD-ENFs Macro Groups 2011 2021
Yearly YTD-ENFs Macro Groups 2011 2021

Concerns of perceived lofty valuations in the equity market have given taxable fixed income funds the continued advantage over equity funds in the fund-flows arena despite the concerns of rising interest rates and growing inflation. So far for Q3 (through the fund-flows week ended Sept. 8, 2021), taxable bond funds (including ETFs) have attracted the largest amount of net inflows, taking in $81.6 billion, followed by equity funds (+$61.2 billion) and municipal bond funds (+$23.4 billion), while money market funds (-$36.0 billion) have suffered net redemptions.

And while Core Bond Funds (aka corporate investment-grade bond funds) have been the primary attractor of investors’ assets year-to-date—attracting $103 billion—we’ve seen a recent influx of investors padding the coffers of Short Investment-Grade Debt Funds (+$51.1 billion, YTD), Inflation Protected Bond Funds (+$47.8 billion), Multi-Sector Income Funds (+$39.6 billion), and Loan Participation Funds (+$33.5 billion) as investors and their advisors look for fixed income funds that might weather the nascent rise in interest rates better than other longer dated/higher duration products.

In fact, for Q3 so far, Short Investment-Grade Debt Funds have outdrawn all other taxable fixed income fund classifications, taking in a little under $15.8 billion, followed by Inflation Protected Bond Funds (+$10.5 billion), Multi-Sector Income Funds (+$9.7 billion), Core Bond Funds (+$7.7 billion), and Loan Participation Funds (+$5.7 billion).

We have also seen a recent interest in funds that focus on real assets and income-oriented equity gaining a little traction, with equity income funds and sector real-estate funds taking in $7.9 billion and $2.9 billion, respectively, for Q3 as investors seek alternative income opportunities in a possible rising interest rate environment.

Bond Funds Remain Significant Attractors Of Investors’ Assets Despite Inflation
 

Related Articles

Bond Funds Remain Significant Attractors Of Investors’ Assets Despite Inflation

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email