Despite inflation concerns, U.S. bond funds still receive more cash

The net inflow into US bond funds this year far exceeds the net inflow of comparable equity instruments, which is in line with expectations. Inflation concerns Will weaken the attractiveness of fixed income assets.

According to data from the Institute of Investment Companies, as of June 23, bond mutual funds and exchange-traded funds have increased by US$372 billion, while stocks have increased by US$160 billion. Bond funds are expected to exceed USD 446 billion and USD 459 billion in capital inflows in 2020 and 2019.

Analysts attribute the popularity of bond funds (excluding money market holdings) to concerns about high stock valuations and concerns that an aging population needs stable income during retirement.

Shelly Antoniewicz, senior director of financial and industry research at ICI, said: “Financial advisors follow the asset allocation model, and portfolio rebalancing and demographics are strong trends.” “The cumulative flow of bond funds is very consistent with the percentage of people over 65.”

The preference for fixed-income securities is because stocks outperform bonds. The Standard & Poor’s 500 Index has risen 15.9% so far in 2021, including reinvestment of dividends, and has risen the most. Expensive valuation Since the Internet boom in 2000.

The total return on high-quality government bonds and corporate bonds remains negative this year. As interest rates in the U.S. 10-year bond market rose in early 2021, their performance was hit hard because of the expected large-scale fiscal and monetary stimulus to lead to a strong economic recovery—and higher inflation.

Financial advisors have played a role in boosting bond funds by urging clients to maintain a balance between stocks and fixed income. Periodic portfolio rebalancing involves selling well-performing assets and buying under-performing assets. Pension plans have also shifted from stocks to long-term bonds to meet the needs of retirees.

Mark Vaselkiv, chief investment officer of T Rowe’s fixed income, said: “Nowadays, the level of financing of pension plans is much better. It is a prudent strategy to lock in its stock returns and protect the portfolio from the risk of a sharp decline in stocks.” Prices. “We expect asset allocators to move further towards bonds.”

The bar chart of high-yield bonds is a bright spot for fixed income (total return, %), showing that stocks are lagging behind the bond market in 2021

Erin Browne, Pimco’s multi-asset strategy portfolio manager, said that interest rates in the United States are higher than those in Europe or Japan, which also provides “a strong driving force for foreign purchases of US fixed-income products.”

This year’s U.S. bond flows are distributed among mutual funds and ETFs. Investors favor actively managed funds that can mitigate losses caused by rising market interest rates, as well as inflation-protected bonds, floating-rate bonds, and municipal bills that provide tax-free income.

According to ICI, equity investors prefer ETFs to mutual funds, which have experienced capital outflows this year.

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