Ultra-Short Obligation Funds Continue to Attract Net New Money

The hot streak for ultra-short obligation funds has grown to more than a year as the group has experienced net inflows in 57 of the last 59 weeks. The group took in $1.2 billion in net new money for the fund-flows week ended Wednesday, April 24, to bring their total net inflow over the last 59 weeks to $49.7 billion. Ultra-short debt funds have had their two best annual net inflows ever in the last two years (+$59.7 billion and +$25.1 billion for 2018 and 2017, respectively), and have taken in $9.5 billion for the year to date.

The peer group has benefited from the narrowing of the yield curve. Shorter-term maturity investment-grade debt becomes more attractive as spreads narrow because investors can receive a return similar to the longer-dated maturities, but with substantially less risk. Since the end of 2016, the one-/10-year spread on the yield curve has narrowed from 1.60% to 0.01% as of the end of Q1 2019. The 10-year Treasury’s yield has remained relatively static over this time period, but the yield on the one-year has grown from 0.85% to 2.40%. It’s not surprising that, over this 10-plus quarter time period, the group has experienced net positive flows of more than $102 billion.

The lion’s share of this year’s net inflows for the peer group belong to ultra-short mutual funds (+$8.2 billion), while ultra-short ETFs have contributed $1.3 billion to the total net positive flows. Taking a more granular look at the data indicates that four funds (three mutual funds and one ETF) have experienced net inflows of greater than $1.0 billion since the start of the year: Morgan Stanley Institutional Ultra-Short Income Portfolio (+$2.5 billion), JPMorgan Managed Income Fund (+$2.1 billion), Lord Abbett Ultra Short Bond Fund (+$1.7 billion), and JPMorgan Ultra-Short Income ETF (JPST, +$1.2 billion).