Corporate Investment-Grade Debt Funds Continue to Attract Net New Money

Thomson Reuters Lipper’s corporate investment-grade debt funds macro-group took in $1.2 billion of net new money for the fund-flows week ended Wednesday, August 1. This was the group’s twenty-first straight weekly net inflows, during which time it had net-positive flows of $34.4 billion. For the year to date the group had net inflows of just shy of $85 billion, following record-setting net inflows of $229.3 billion for 2017. The group has had two plus years of solid net-positive flows after suffering its only annual net outflows ever (-$38.3 billion) for 2015.

In what has been another solid year for taxable bond funds (+$93.1 billion of net inflows for the year to date) the corporate investment-grade debt funds group has been responsible for the overwhelming majority of the net inflows. As interest-rate risk has continued to increase this year, with changes to both the level of interest rates (increases) and the shape of the yield curve (narrowing), investors have put their money into higher-quality, shorter-term corporate bond funds. Treasury bond funds, long considered a safe-haven investment, trail the year-to-date net inflows of the corporate investment-grade debt funds group by over $50 billion, while corporate high-yield debt funds (a risky asset) have experienced net outflows of over $24 billion.

Within the corporate investment-grade debt funds macro-group net inflows into two of the peer groups have stood out: Core Bond Funds and Ultra-Short Obligation Funds have grown their respective coffers by $34.3 billion and $25.8 billion. The Core Bond Funds peer group has a dollar-weighted average maturity requirement of between five and ten years, while Ultra-Short Obligation Funds’ is less than one year. Four passively managed products account for approximately 75% of the net inflows for Core Bonds Funds for the year to date: Vanguard Total Bond Market II Index Fund (+$11.6 billion), Vanguard Total Bond Market Index Fund (+$5.9 billion), iShares Core US Aggregate Bond ETF (+$4.5 billion), and Fidelity US Bond Index Fund (+$4.2 billion). The largest net inflows for the Ultra-Short Obligation Funds peer group belong to Lord Abbett Ultra Short Bond Fund (+$5.0 billion), PIMCO Short-Term Fund (+$4.7 billion), and iShares Floating Rate Bond ETF (+$4.0 billion).