June 19, 2020

Ultra-Short Obligations Funds Charge Back

by Pat Keon, CFA.

Funds in Refinitiv Lipper’s Ultra-Short Obligations Funds (USO) classification took in $933 million of net new money for the fund-flows week ended Wednesday, June 17. This group, like the majority of the taxable bond fund peer groups, has rebounded strongly from the flood of net outflows caused by investor reaction to the COVID-19 pandemic.

This week’s result was the eighth consecutive net inflows for USO funds, representing a total net intake of $13.0 billion. This comes on the heels of the group’s worst fund-flows quarter ever during Q1, when it suffered through $26.0 billion of net outflows. Investor demand has been so high during this current streak that the USO group has registered four of its 10 largest weekly net inflows since Lipper began tracking fund-flows data in 1992. As illustrated in the chart below, the USO group took in $2.2 billion, $2.2 billion, $2.1 billion, and $1.9 billion of net new money for the fund-flows weeks of May 6, June 3, May 20, and June 10, respectively.

The USO group participated in the most extreme whipsaw of fund-flows results in the history of taxable bond funds. As the uncertainty caused by the coronavirus wreaked havoc on the investment industry in Q1, taxable bond funds experienced their worst quarterly net negative flows ever (-$187.3 billion). Investors rushed back to this macro-group in Q2. For the quarter to date, taxable bonds funds have taken in $122.0 billion of net new money (which would represent their largest quarterly net inflows ever) as investors gained confidence from the Federal Reserve taking unprecedented measures to support the markets, the hope that we have the seen the worst of the virus, and pent-up demand.

The lion’s share of the net outflows (-$22.4 billion) that the USO group experienced in Q1 came from mutual funds. The largest individual net negative flows during this time period belonged to Morgan Stanley Institutional Ultra-Short Income Portfolio (-$8.0 billion) and Putnam Ultra Short Duration Income Fund (-$3.8 billion). Following suit, the overwhelming majority of the net inflows in Q2 also belonged to mutual funds (+$12.2 billion), led by JPMorgan Managed Income Fund (+$2.4 billion) and Morgan Stanley Institutional Ultra-Short Income Portfolio (+1.6 billion).




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