20
The flow numbers are in for January
2013
, and it
appears that rumors of a “Great Rotation” out of bond
funds have been greatly exaggerated, at least so far.
Between open-end funds and exchange-traded funds,
taxable-bond-fund categories gathered an estimated
$
32
billion during the month. That’s a relatively large
monthly intake, even compared with the near con-
stant deluge flowing into bond funds over the previous
36
months. During
2012
, credit-sensitive bond funds—
especially emerging-markets and high-yield—grew in
popularity as yield-starved investors embraced the
risk-for-income trade-off. Appetite for these sectors
remained strong, but investors haven’t lost their taste
for the more staid intermediate-term-bond category
either; close to a third of the flows into taxable-bond
funds went to that group.
Overall, January’s bond-fund flows appear to be a
continuation of last year’s trends. The actively
managed bond fund that got the most net inflows for
the month, Silver-rated
PIMCO Income
PONDX
,
embodies what investors are increasingly seeking.
The $
24
billion fund took in $
2
.
1
billion in January,
and more than $
14
billion over the trailing
12
months.
Its
4
.
7%
30
-day yield may not seem like much in
absolute terms, but it’s still well above the
1
.
7%
offered by
Vanguard Total Bond Market Index
VBTLX
, and few pure high-yield corporate-bond funds
are able to offer much more than that these days.
The key to this fund’s above-average payout and
outstanding total returns lately has been its ample
helping of nonagency mortgages, which stood at
more than half the portfolio at year-end. Because of
the sector’s junk-credit ratings and the complexity
involved in analyzing individual bonds’ fundamentals,
many bond managers have abstained from making
sizable moves into this market, leaving the door wide
open for investors who have the necessary exper-
tise to capitalize on the sector’s plump loss-adjusted
yields. Indeed, other funds with sizable nonagency
mortgage stakes have been similarly popular,
including
DoubleLine Total Return Bond
DBLTX
and
TCW Total Return Bond
TGLMX
, which
have garnered $
18
.
7
billion and $
3
.
1
billion in net
inflows, respectively, over the trailing
12
months.
At the same time, the second-most popular actively
managed bond fund in January reflects a more idio-
syncratic story. The Gold-rated $
68
billion
Templeton
Global Bond
TPINX
, with its outstanding long-term
track record and resilient
2008
showing, attracted
large sums of new money from mid-
2009
through mid-
2011
, raking in an average of $
1
.
5
billion per month.
In fact, of the $
66
billion that poured into world-bond
funds from
2009
through the third quarter of
2011
,
roughly two thirds of that went just to Templeton
Global Bond. The tide slowed dramatically and even
turned negative in late
2011
, though, as the fund
got badly stung by that year’s third-quarter volatility.
After a heady rebound in
2012
—the fund’s
15
.
8%
gain more than doubled its typical peer’s—interest is
picking up again; the fund took in $
1
.
7
billion in
January
2013
.
Although Templeton Global Bond’s recent ride has
been turbulent, nothing has changed in the underlying
process to warrant a shift in investor confidence.
Manager Michael Hasenstab and his team thought
escalating fears about three things—a disorderly
dissolution of the eurozone, a U.S. recession, and a
hard landing in China—were overblown, so they
stood their ground and sought to use the volatility to
the fund’s advantage. Although the large majority
of assets in the fund were rewarded for staying put, a
surge in new inflows after the fund’s strong rebound
could suffer the drawbacks of performance-chasing.
Regardless of whether these recent inflows reflect
a broader trend, both
PIMCO
Income and Templeton
Global Bond take on a substantial amount of risk
to deliver the income and returns that have made
them so appealing. Investors should get to know
those risks intimately in order to own these bond-
fund giants successfully.
œ
Contact Miriam Sjoblom at
Hot or Not?
Income Strategist
|
Miriam Sjoblom
