Investment-Grade Corporate Debt Mutual Fund Investors Stay Interested

Fixed income investors have been steadily allocating to investment-grade corporate debt mutual funds in the second half of 2014 after shunning the category during the second half of 2013.  That has occurred against a backdrop of yields unexpectedly declining globally during 2014 and the ten-year Treasury finding a level of stability since June, becoming more range bound between a 2.2%-2.5% yield. Since June 30, 2014, the Lipper Corporate Debt BBB-Rated Funds classification (ex exchange-traded funds [ETFs]) has witnessed $3.0 billion of net inflows (as of November 19), while the smaller Corporate Debt A-Rated category (ex-ETFs) has seen $1.8 billion of net inflows. For comparison, during the second half of 2013 the Corporate Debt BBB-Rated category endured $10.1 billion of net outflows, while the Corporate Debt A-Rated classification managed to garner net inflows of just $0.2 billion.

The second half of 2013 was one of concern about the direction of Federal Reserve policy and the sustainability of the domestic economic recovery. However, net inflows for both classifications have picked up and remained in positive territory since June 2014. Attractive yield alternatives are relatively few, and the domestic economy continues to improve gradually along with the credit worthiness, earnings, and balance sheets of investment-grade U.S. corporations. Despite relatively low average absolute 30-day SEC yield levels (the 30-day SEC yield is calculated net of fund expenses) by historical standards of 2.21% for Corporate Debt A-Rated Funds (as of October 31, 2014) and 2.60% for Corporate Debt BBB-Rated Funds, the categories appear poised to continue to attract steady net inflows, given the current macroeconomic environment within fixed income.