Nobody could have predicted political revolution in the Middle East or natural and nuclear disasters in Japan, and it was that unpredictability that brought bond funds back into play versus equities in the first quarter of 2011.
"These black swan events were exactly the headline risks that sent the Dow Jones Industrials Average down nearly 800 points between mid-February and mid-March. In that time the BarCap high-yield bond index fell 1% and the investment-grade index climbed 1.5%," wrote Jeff Tjomehoj, Lipper's head of Americas research, in an executive summary on Wednesday.
Bond Funds Narrow Q4 Gap With Equities
In the fourth quarter of 2010, equity and exchange-traded funds (ETFs) outdrew bond funds $44.3 billion to $15.9 billion, Tjomehoj said. But after the uprisings in Tunisia spread across the Arab world, net flows for Q1 2011 appear very close, with equity funds outdrawing bond funds $59.7 billion to $54.1 billion.
Meanwhile, Lipper senior analyst Tom Roseen reported last Tuesday that equity closed-end funds (CEFs) strung together their fourth consecutive month of plus-side returns in March, adding 1.12% on a NAV basis and 1.62% on a market basis to their February month-end values.
But strengthening economic reports "put a little fear into fixed income investors" that the Federal Reserve may increase interest rates sooner rather than later, Roseen noted. "For the fourth month in five, fixed-income CEFs posted a negative NAV-based return, declining 0.21%, while their market-based return managed to remain in the black, rising 0.80%, with municipal bond funds causing all of the downside damage."
In the world of hedge funds, March proved to be a challenging month as hedge funds held roughly flat, advancing only 0.30% on the Hennessee Hedge Fund Index, which was up 2.50% year to date as of Thursday. In comparison, the S&P 500 declined -0.10% (+5.43% YTD), the Dow Jones industrial average increased +0.76% (+6.41% YTD) and the NASDAQ Composite Index fell -0.04% (+4.83% YTD).
"March was challenging as markets initially sold off sharply on escalating conflicts in the Middle East and tragic events in Japan. However, markets were able to rally back during the last couple weeks to finish the month roughly unchanged," said Charles Gradante, co-founder of Hennessee Group, which manages the index, in a statement. "Many hedge funds were whipsawed as they became more defensive mid-month as risks increased, which resulted in less participation during the late month rebound."
New Fund Launches From Goldman, Arrow, Van Eck Global, ProShares
A host of fund launches have been announced in the last couple of weeks, including:
Goldman Sachs Asset Management on April 4 announced the launch of the Goldman Sachs High Yield Floating Rate Fund (Class A shares: GFRAX), a portfolio of non-investment grade floating-rate loans and other variable-rate
securities issued by U.S. and foreign companies. The Fund is offered in Class A and Class C shares, both with $1,000 minimum initial investments. The Fund also offers Institutional and Class R & Class IR Shares.
The fund's investment objective is to seek a high level of current income and to help investors navigate a changing interest rate environment by uncovering attractive income opportunities relative to their risk within the non-investment grade loan market.
"We believe floating-rate loans are appealing to investors because they combine relatively moderate price volatility with attractive income that rises along with interest rates," said Rachel Golder, co-head of the High Yield and Bank Loan team, in a statement.
Mutual fund company Arrow Funds announced March 30 its launch of a commodity fund, the Arrow Commodity Strategy Fund (Class A shares: CSFFX). Benchmarked to the Longview Extended Commodity Index (LEX), the alternative investment mutual fund is designed to appeal to long-term investors who seek broad-based commodities exposure, but with less of the asset class' characteristic volatility and turnover.
Created by Longview Strategic Research, the LEX is calculated and published daily by Dow Jones Indexes. As a benchmark, the LEX takes a long-term view of the commodities markets and uses far-dated futures contracts. Unlike other commodity indexes, which tend to use monthly rolls of futures contracts one to three months out, the LEX follows an annual roll cycle of futures contracts that are 12 to 15 months away from expiration. As a result, the LEX covers longer-term holding periods with lower turnover.
