U.S.-registered bond mutual and exchange-traded funds lost $30.3 billion to investor redemptions this month, putting them on track for their slowest year since 2004.
The withdrawals for the month through Aug. 19 are already the third-highest on record, following $69.1 billion of withdrawals in June and $42 billion in October 2008, according to a report dated yesterday by TrimTabs Investment Research in Sausalito, California. Bond funds have suffered $4 billion in redemptions this year, on pace for the biggest withdrawals since investors pulled $7 billion in 2004.
The prospect of losses in the fixed-income market and rising rates have spurred investors to retreat after pouring $1.2 trillion into bond mutual funds and ETFs from 2009 through 2012. Dollar-denominated corporate and government bonds lost 3.4 percent so far this year, according to Bank of America Merrill Lynch index data, the biggest drop for comparable periods since 1981. The investor exodus has hit some of the most prominent bond fund managers including Pacific Investment Management Inc.’s Bill Gross, and DoubleLine Capital LP’s Jeffrey E. Gundlach.
“These outflows mark an enormous shift for the bond world,” TrimTabs said in its report. “A vicious circle of losses and redemptions as the bond binge unwinds could get nasty.”
U.S. Federal Reserve Chairman Ben S. Bernanke in May started outlining his scenario to unwind the central bank’s unprecedented asset purchases, prompting investors to flee in June after 21 straight months of deposits into bond products. Yields on 10-year Treasuries reached 2.88 percent on Aug. 19, the highest level since July 2011, according to data compiled by Bloomberg.
“Lulled into complacency by a 30-year bull market, many of these investors probably did not understand the risks they were assuming and regarded bond funds as ‘safe’,” according to TrimTabs. “Now they seem to be reacting very quickly to losses.”
Clients pulled an estimated $7.4 billion from Gross’s Newport Beach, California-based Pimco in July, according to research firm Morningstar Inc. Gross’s Pimco Total Return Fund has declined 3.6 percent this year, trailing 73 percent of competing funds.
DoubleLine, based in Los Angeles, lost $631 million to redemptions in the same month. Gundlach’s $37.3 billion DoubleLine Total Return Bond Fund has fallen 1.1 percent this year, beating 86 percent of rivals.
Investors removed $11.3 billion from stock funds focused on the U.S. through Aug. 19, after putting in a record $39.2 billion in July. Those funds are still on track to post their first year of net deposits since 2007, prior to the financial crisis that shook investor confidence in equities.
Stock funds that invest outside the U.S. have attracted $13.2 billion so far this month. Global funds are also headed for their best year since 2007.