Investors have yanked $30.3 billion from U.S.-listed bond mutual funds and exchange-traded funds this month, marking the third-largest monthly outflow in records going back to 1984

August 21, 2013, 5:24 p.m. ET

Investors Yank Money From Bond Funds

August Outflows Are Third-Largest Monthly Figures on Record

KATY BURNE

Investors have yanked $30.3 billion from U.S.-listed bond mutual funds and exchange-traded funds this month, marking the third-largest monthly outflow in records going back to 1984, according to estimates by TrimTabs Investment Research. The redemptions, which are through Aug. 19, come amid fears the Federal Reserve will begin winding down its bond-buying stimulus program as soon as September, the data company said, causing interest rates to rise following a postcrisis boom for bonds. When yields rise, the price of existing bonds falls, exposing investors to losses.The August moves come on the heels of a record $69.1 billion monthly outflow in June and a $14.8 billion outflow in July. Before June, bond funds posted inflows for 21 consecutive months. Some $1.2 trillion of investor funds flowed into bond funds between 2009 and 2012.

“A lot of the selling just happened, according to our estimates,” said David Santschi, chief executive of TrimTabs, referring to the redemptions picking up in recent days. Friday alone saw $5.2 billion of redemptions, he said.

Of the $30.3 billion that came out of the funds so far in August, $5.3 billion was from ETFs, he said.

The second-largest monthly outflow was a $41.75 billion wave in the depths of the financial crisis in October 2008, according to TrimTabs data.

TrimTabs gets its estimates by surveying 4,000 U.S. funds daily. The company said outflows have been heaviest in funds investing in municipal bonds and Treasury bonds.

Bond Funds Lose $30.3 Billion in August in Big ‘Shift’

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.”

Bernanke’s Remarks

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 (USGG10YR) 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. (MORN) Gross’s Pimco Total Return Fund (PTTRX) has declined 3.6 percent this year, trailing 73 percent of competing funds.

DoubleLine Redemptions

DoubleLine, based in Los Angeles, lost $631 million to redemptions in the same month. Gundlach’s $37.3 billion DoubleLine Total Return Bond (DBLTX) 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.

To contact the reporters on this story: Lisa Abramowicz in New York at labramowicz@bloomberg.net; Christopher Condon in Boston at ccondon4@bloomberg.net

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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