Investors Flee Taxable Bond Funds

For Lipper’s fund-flows week ended Wednesday, October 31, its taxable bond funds asset group (including both mutual funds and ETFs) suffered net outflows of approximately $7.5 billion. This represented the group’s eleventh worst outflows in its history (Lipper began tracking the data in 1992) and its worst since the fund-flows week ended February 14, 2018, when it had net-negative flows of $7.7 billion. Over the last four weeks the taxable bond funds group has seen its coffers shrink $23.3 billion, making for the worst monthly result for the group since December 2015, when it had $50.1 billion net leave.

The hardest hit taxable bond fund peer groups for the week and the past month belonged to below-investment-grade debt categories as well as classifications with longer maturity requirements. These movements appeared to be in reaction to concerns about an increase in interest-rate risk as well as a shift to a risk-off strategy. Funds in Lipper’s High Yield Funds peer group saw $7.0 billion net leave for October—the largest net outflows among the taxable bond fund groups. The next highest negative net flows for the month belonged to the Core Bond Funds (-$5.6 billion) and Corporate Debt BBB-Rated Funds (-$2.7 billion) peer groups. (Funds in the Core Bond group have a maturity range of between five and ten years, while the Corporate Debt BBB-Rated Funds category does not have a maturity requirement; we typically see funds with effective maturities greater than ten years in this category.) Conversely and providing additional evidence that investors are wary of interest-rate risk, the largest net inflows for the month belonged to the Ultra-Short Obligation Funds (+$6.9 billion) classification, which has a maturity requirement of less than one year.

Taxable bond mutual funds (-$8.3 billion) were responsible for all of this past week’s net outflows. It was the fifth straight week of net outflows for the group, during which it shed over $15.6 billion. At the individual fund level the largest net outflows for the week belonged to Goldman Sachs High Yield Floating Rate Fund (-$373 million), Metropolitan West Total Return Bond Fund (-$350 million), and DoubleLine Total Return Bond Fund (-$343 million).