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Its no secret that PIMCO suffered a disastrous 2013, with investors pulling over $20 billion from the world’s largest bond fund manager.
The flagship $237 billion Pimco Total Return Fund lost 2.3% in 2013, which was worse than the benchmark Barclays U.S. Aggregate Bond Index 2% drop, and worse than 74% of its peers in the intermediate-term bond fund category, according to Morningstar Inc.
But this begs the question, where did all the money go? While some investors are undoubtedly sitting on cash, others are not so keen to abandon bonds altogether. Pensions and Investments today reports that BlackRock and Goldman were two of the biggest beneficiaries of PIMCO’s woes.
Both of these Wall St giants benefited due to the outperformance of their nontraditional bond funds, which are not tied to any index and free to invest anywhere across the fixed-income spectrum.
With the $11 billion BlackRock Strategic Income Fund (BASIX) posting a 3% return in 2013 and the $14.7 billion Goldman Sachs Strategic Income Fund (GSZAX) a 6% return.
Thanks primarily to these two unconstrained funds, BlackRock and Goldman were the only two mutual fund companies to attract more than $10 billion of net inflows into their bond funds through the first 11 months of the year, according to Morningstar.
Overall, investors pulled out a record $86 billion from bond funds in 2013, according to research firm TrimTabs and that trend isn’t expected to reverse itself anytime soon.
Todays Other Top Stories
WSJ: – The little-known advantages of muni bond mutual funds. – Low-fee municipal bond mutual funds. Although not little known, traditionally municipal bonds have been viewed as an investment for people with high incomes. Today, the yield differential between tax-free interest income and taxable interest income benefits people in lower-income tax brackets as well.
WSJ: – Rules to curb muni-bond advisers. – U.S. securities regulators, under pressure from Congress to prevent a repeat of financial debacles in municipalities like Detroit and Jefferson County, Ala., are set to propose a series of rules to rein in advisers that help states and localities raise cash in the $3.7 trillion municipal-bond market.
LearnBonds: – Gauging your personal allocation to bonds. – While the recent perk-up of yields may be a positive development for bond investors looking for extra income, it could represent an equally concerning situation for those sitting on long duration individual bonds or bond funds. To succeed in this formidable period, each income investment should be made after careful, judicious consideration of all available options.
WSJ: – Treasury bonds stung by strong ADP jobs report. – Treasury bond prices fell as the latest employment report suggested U.S. economic growth is gaining steam.
Forbes: – Feeling fine owning stocks and shorting Treasury bonds. – It is our opinion that 10-year notes will finish the year yielding above 4% and that being short the long bond is a good play at the moment. We also feel comfortable owning high-yield as long as it continues to experience strength. We would also avoid REIT’s near term as they have been in a downtrend since last May when the Fed first mentioned the T word (tapering).
CNBC: – Investment grade the new junk? The trouble with investing. – Central banks have had a massive distorting effect on several asset classes, two analysts have told CNBC, with investment-grade fixed-income assets now yielding more than riskier “junk” debt.
Digital Journal: – AdvisorShares peritus high yield ETF (HYLD) earns 5-star Morningstar rating. – AdvisorShares, a leading sponsor of actively managed exchange-traded funds (ETFs), announced today that the AdvisorShares Peritus High Yield ETF (NYSE Arca: HYLD) has been recognized with a 5-Star Morningstar Rating™ for both its 3-year and overall risk-adjusted performances, respectively, from inception through December 31, 2013, out of four ETFs in the high yield bond category.
BusinessWeek: – Toys ‘R’ Us investors show doubt of repayment. – Toys “R” Us Inc. is paying the highest yields among 16 issuers of CCC+ rated bonds as investors grow dubious the retailer with three years of falling profit will repay or refinance $2.85 billion of debt due through 2016.
CNBC: – Boost fixed income returns with junk. – What do you do with the bond part of your portfolio? Look to invest some of it in junk bonds. Junk bonds are likely to be one of the best performers of 2014, with default rates set to remain low.
Benzinga: – Wall Street banks turn negative on emerging markets. – Emerging markets no longer provide some of the world’s most compelling investment opportunities.
NDTV: – Emerging market investors face year mined with political risks. – As the tidal wave of global central bank liquidity recedes in 2014, emerging market investors are growing more anxious about local political risks – and how to spot them early on.
FT: – Do not bet on a broad emerging market recovery. – One striking aspect of last year’s markets is the extent to which emerging market assets underperformed those in advanced economies. As investors search for returns this year among some frothy asset markets, such unusual underperformance attracts even greater attention.
Artemis: – PCS triggers used in $2.8 billion of catastrophe bond issues in 2013. – Over the course of 2013 the volume of catastrophe bonds issued which utilised data from Property Claim Services (PCS) within their triggers totalled $2.8 billion, accounting for nearly 40% of risk capital issued.
MarketWatch: – How financial advisers are investing for 2014. – Divergent market moves and concerns about higher interest rates ahead are two of the factors that have propelled some financial advisers to tweak their clients’ portfolios in recent months.
InvestorPlace: – 5 Ways to survive the 2014 bond market meltdown. – If the prospect of losing up to 50% in value is scary, here’s what to do.
Yahoo: – Moderate funds should be “moderate”. – That mutual fund you bought, figuring it would shield you from pain in the stock market, may turn out to be a wolf in sheep’s clothing.
Chicago Tribune: – Advice for adjusting your portfolio in the new year. – Common stocks and stock funds performed very well in 2013. If you maintained a diversified portfolio with a significant proportion in equities, you most likely had a good year. If your portfolio was heavily weighted toward traditional bonds or bond funds, or toward gold and precious metals, you were disappointed.
MSN Money: – 5 moves to survive the 2014 bond meltdown. – Do you own U.S. government Treasury bonds in your portfolio? Millions of Americans do — and that’s a big problem.
Tulsa World: – Five predictions for mutual funds in 2014. – People use a lot of different methods for telling the future, from numbers to mirrors to random dots made on paper, tarot cards, reading the smoke from an altar, dropping hot wax onto water and more.
Minyanville: – Three types of ETFs that look ready to play catch-up in 2014. – In the first full week of trading for the New Year, investors are starting to look at new opportunities for their portfolios. As a trend follower, I am always willing to let my winners run until such time as they are starting to fall out of favor. However, I am also on the lookout for sectors that may be undervalued by the majority of the investing community.
247 Wall Street: – Mutual fund and ETF trends: Record inflows for stocks, record outflows for bonds. – TrimTabs Investment Research has released its data trends for U.S.-listed mutual funds and exchange-traded funds in 2013. The long and short of the matter is that stock funds saw record inflows while bond funds saw record outflows. What really stands out here is that you can see just how dominant ETFs are against mutual funds today.
Income Investing: – Morgan Stanley: Volatility, limited upside for bonds in 2014. – Add Morgan Stanley Wealth Management to the long list of bond-market skeptics entering 2014. Morgan Stanley’s base case sees the 10-year Treasury yield moving to 3.25% and familiar 2013 themes carrying over into this year, namely shorter-maturity bonds outperforming longer-maturity ones at least for the first half of 2014.
Morningstar: – Which bonds offer value in 2014? – Is this the year to buy retail bonds or emerging market debt? We examine the options facing investors looking for fixed interest exposure.
Investors.com: – Taxable bond funds and munis rose in Q4, T-bonds fell. – Bond investors’ relief was dramatic in December. Anticipating that the Federal Reserve was about to reveal — finally — the size and pace of cutbacks in its bond buys, investors began to return to taxables. Fed assurances that it would not raise interest rates soon was frosting on the cake.
Bernanke & Rosengren yesterday have indicated $10bln of tapering per FOMC mtg in 2014. Will look for confirmation in minutes. #FOMC
— Anthony Valeri (@Anthony_Valeri) January 8, 2014
Decision by $WFC & others to hold mortgages on balance sheet will no doubt reduce Agy MBS supply, not all non-govt quality IMO
— David Schawel (@DavidSchawel) January 8, 2014
14:00 *FED OFFICIALS SAW WANING BENEFITS FROM MONTHLY BOND PURCHASES
— David Schawel (@DavidSchawel) January 8, 2014