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Private investors are still repositioning their portfolios for a high interest rate world, dumping bond funds in the process. As this post in the Short Side of Long shows, equity funds continue to attract cash whilst bond funds play the part of the ugly sister.
Last weeks ICI fund flows report showed “equity funds had estimated inflows of $904 million for the week, compared to estimated outflows of $212 million in the previous week. Domestic equity funds had estimated outflows of $694 million, while estimated inflows to world equity funds were $1.60 billion.”
“bond funds had estimated outflows of $6.77 billion, compared to estimated outflows of $9.30 billion during the previous week. Taxable bond funds saw estimated outflows of $4.72 billion, while municipal bond funds had estimated outflows of $2.05 billion.”
The sell-off could be an opportunity for some, according to Short Side of Long, bond funds have now reached their most extreme levels since February 2011. This chart from Consensus Inc, shows that once the current selling has exhausted itself, a tradable bottom is at hand for short term traders.
Todays Other Top Stories
CFA Institute: – Why it might not be crazy to buy bonds right now: Understanding the roll down. – Retail investors have been rapidly selling out of bond funds. That may look either wise or unwise with the benefit of hindsight, but one often-overlooked fact remains: New and existing bond investors now have the benefit of a much steeper yield curve. In fact, the “roll down” portion of a bond’s return is one of the most important (and often misunderstood) aspects of a bond’s total return.
Learn Bonds: – Exchange-traded debt – A different breed of bonds. – Exchange-traded debt is a type of bond that, rather than trading over-the-counter, trades on an exchange. When examining the features of many exchange-traded bonds, investors will notice that they seem to be a hybrid of preferred stocks and more traditional bonds.
Minyanville: – Are corporate bonds another bubble in the making? – The bond bonanza continued on Monday as another $8.75 billion of new corporate bonds were sold. The total could have been higher had a couple of deals not been pushed out to the next few days. The mood was even better in the derivatives space, with credit default swaps (CDSs) of large US financials down sharply, and the broad Markit HY CDX Index also tighter by a strong 13bps.
Mebane Faber: – Mom’s buying munis. – She has probably way too much US stock exposure for her risk tolerances (although her cost basis on some stocks is quite remarkable), and so we are rotating her out of the expensive (IMO) US stock market into bond opportunities, and balancing out the foreign exposure to over 50% of equity exposure.
Turnkey Analyst: – Muni-bond mayhem? Discounts on closed end funds. – A list of discounts on closed end funds that have greater than a 0% allocation to municipal bonds. Grab some tax-free yield at a discount!
About.com: – Should you invest in multi-asset income funds? – Today’s low-yield environment has sent investors on the hunt for higher-yielding alternatives outside of the traditional bond arena. One solution has been the rise of multi-asset income funds, which are typically “go-anywhere” funds where the manager has the discretion to invest in any market segment that offers attractive yields and favorable long-term return potential. Multi-asset income funds have experienced high demand in recent years, growing in both number and in total assets under management.
Bloomberg: – Investors grow bullish on stocks, spurn bonds, BofA says. – Investors have raised equity allocations to the highest level in 2 1/2 years after turning skeptical of bonds, and prefer euro-area shares to American stocks, a Bank of America Corp. survey showed.
Zacks: – 3 High yield bond ETFs to watch on Fed tapering. – The fixed income world remained depressed this year with global sell-off over the past couple of months. Investors have been continuously shifting their exposure to the equity world based on improving U.S. economic conditions, Euro zone’s escape from recession and stabilizing Chinese economy.
ETF Trends: – Another look at high-yield bond ETFs. – Junk bond exchange traded funds provide attractive yields, but the asset class category exposes investors to specific credit risks. The yield on speculative grade debt depends on the time horizon for when the bond is repaid and the creditworthiness of the issuer, writes John Waggoner for USA Today.
CNBC: – The bond market’s ticking time bomb. – Despite their red-hot appeal, bank loan funds aren’t on Brian Frederick’s investment shopping list. A principal at Stillwater Financial Partners in Scottsdale, Ariz., the financial planner doesn’t suffer from short-term memory when it comes to another rise in popularity for the asset class, which went over the cliff in the Great Recession.
Bloomberg: – Tobacco bonds see best gain since April after 17% drop. – The $84 billion market for junk-rated tobacco bonds, one of the weakest areas of municipal debt this year, is rallying to a one-month high after a ruling against cigarette makers in a payment dispute with states.
Investors.com: – ETF Flows: Why this indicator matters to investors. – It’s one of the ETF industry’s largest confabs of the year. Morningstar’s annual ETF Invest Conference brings together industry experts from across the country to discuss investing strategies and developments. About 400 people attended last year.
Bernardi Securities: – 2013 Municipal bond scare: Exits & opportunities. – Bernardi Securities are hosting a webinar tomorrow, Wednesday 18th featuring Matt Fabian from MMA (Municipal Market Advisors), one of the leading municipal market analysts. Topics covered include Detroit, “The Great Rotation”, laddered portfolios vs. funds, and recent market movements.
Frank Grossmann: – How to build an ETF rotation strategy with 50% annualized returns. – In this paper I want to explain to readers how our Maximum Yield Rotation Strategy is works. This Strategy achieves very high returns investing in inverse volatility. From 2011 to today the annual performance was more than 70% per year. Year to date the performance is 40.9%. The Sharpe Ratio (Return/Risk) of 2.12 is a “dream value” and I doubt, that someone can show me a strategy with a higher ratio.
John Mylant: – Interest in junk bonds decelerates: Precursor to a market sell-off? – The stock market and junk bonds are tied closely together in their typical movements. When companies are doing well junk bonds usually do well and vice versa. While the markets have been going up, the demand for junk bonds has been slowing down for months now. Could this be a precursor to what we can expect in the stock market?
Charles Margolis: – Celgene’s new bonds: Oasis or mirage? – Given the recent drought in bond yields, these Celgene bonds may look like an oasis. Investors must determine whether the yields are a mirage. Drug manufacturers operate in a very complex realm, as evidenced by the nearly $80M Celgene paid to Elan, on top of the $2.9B Celgene paid for Abraxis.
FT: – Hedge fund trade du jour: muni spreads. – We hear that this year’s exodus from the US muni bond market by retail investors, nervous about the coming bond pain (from higher rates and Detroit nerves rather than predictions of default and disaster), has fixed income hedge funds dipping into the $4tn market.
Gross: Tomorrow will be volatile one way or the other. Expect lower yields for 1-5 year Treasuries.
— PIMCO (@PIMCO) September 17, 2013
Gundlach's $DBLTX portfolio out for 8/31, essentially no new buys & cash falls to 10%. Was as high as 20% if I recall correctly
— David Schawel (@DavidSchawel) September 17, 2013
— Greg Solomon (@ionbonds) September 17, 2013