Actively and passively managed bond mutual funds and exchange-traded funds have had a great year so far. They received a total projected net inflow of almost $500 billion through November as investors flocked to safe assets that paid a yield.
Some flagship bond funds from well-known Southern Californian firms, on the other hand, fell behind, with at least $10 billion in client money leaving each one.
Morningstar Direct data shows that the MetWest Total Return Bond Fund from TCW Group in Los Angeles lost the most money, almost $17.7 billion so far this year through last month. Franklin Resources Inc. BEN +2.60% owns Western Asset Management Co., which is based in Pasadena, California and is known as “Wamco.” Its Core Plus fund lost $13.9 billion and its Core Bond fund lost almost $11 billion.
When money left two of the funds, it was for different reasons. But all three funds have failed in the last three years to keep up with the Bloomberg U.S. Aggregate Bond Index, which is a standard that many funds use to measure their own success.
“There will always be sectors or industries that will lose money or have a hard time, no matter how good the year has been,” said Winston Chua, an analyst at EPFR, a part of ISI Markets and a data provider. It’s the same with bond funds; it’s true that some bond funds don’t do as well as others.
| Fund | Estimated Net Outflow YTD as of November |
| TCW MetWest Total Return Bond Fund | $17,698,501,218 |
| Western Asset Core Plus Bond Fund | $13,889,698,916 |
| Western Asset Core Bond Fund | $10,983,233,991 |
The TCW MetWest Total Return Bond Fund MWTIX +0.23% had 49.3% of its assets in mortgage-backed securities and almost 29.3% in Treasurys as of last month. Since its start in 2000, the fund has usually done better than the Bloomberg U.S. Aggregate Bond Index. But, as of November, it had done worse than the average over the past three years.
According to Bloomberg News, Bryan Whalen, chief investment officer for TCW’s fixed-income group, said, “we’re often too early on fundamentally convicted trades.” He also said that this method “pays off over time, even if it comes at the cost of a little bit of short-term underperformance.”
The MetWest Total Return Bond Fund that Whalen helps to run is a “deep-value” fund, which means that it often takes positions that are different from the majority of investors in the market. Whalen told Bloomberg that he was sticking to his decision to buy a lot of short-term Treasurys because he thought that high interest rates would hurt U.S. economic growth in the long run, which hasn’t happened yet.
Doug Morris, a spokesman for TCW, refused to say anything. TCW has many funds, including the MetWest Total Return Bond Fund. These funds deal in fixed income, stocks, emerging markets, and other types of investments. Even though they do so through separate accounts, some of the company’s biggest investors have kept their money in TCW’s deep-value plan.
Franklin bought Western Asset’s parent company, Legg Mason, in 2020, and a spokeswoman for Franklin, Jeaneen Terrio, also declined to speak for this article.
Federal charges that Wamco’s former co-chief investment officer, Ken Leech, engaged in a scheme to steer $600 million of gains towards favoured clients and $600 million of losses to less-favored customers, like those in the firm’s Core and Core Plus strategies, have done a lot of damage to the reputations of Western Asset and its current parent company, Franklin.
During a hearing on Monday, Leech pleaded not guilty to fraud. Wamco is said to be helping detectives. Leech was charged by the government in November. In a statement similar to the one that came out after, his lawyer Jonathan Sack said that his client has a “unblemished record over nearly 50 years as a trader and portfolio manager” and that “these unfounded allegations ignore key facts, including the fundamental differences between distinct fixed-income strategies and the irrelevance of first-day performance to managing these strategies.” Sack also said that Leech did not benefit from the alleged wrongdoing and that “we are confident that he acted properly at all times.” He added, “Mr. Leech will defend himself vigorously.”
As of Friday, Franklin Resources stock had dropped 30% this year.
Western Asset’s Core Plus Bond Fund WACPX +0.22% and Core Bond Fund WATFX +0.29% each put the most of their money into agency mortgage-backed securities and investment-grade credit in November. Like the TCW fund, they have done better than the Bloomberg average since their start in 1998 and 1990, but not so well in the last three years.
The Total Return Fund at Pacific Investment Management Co., which is based in Newport Beach, Calif. and goes by the name Pimco, was ranked fourth on Morningstar Direct’s list of bond funds that are expected to lose the most money in 2024. Up until November, almost $10.30 billion left the fund. However, a lot of this seemed to be clients moving their money out of the fund and into separately managed accounts at Pimco. A spokesperson for Pimco, Agnes Crane, said the company couldn’t say anything.
Since it started in 1987, Pimco’s Total Return Fund PTTRX +0.24% has had an average annual return of about 6.2%. However, based on figures from December, it has had an average three-year return of -2.3%. The company’s plan is to spend mostly in high-quality intermediate-term bonds. Its largest share of its portfolio is made up of securitised and U.S. government-related products, along with investment-grade credit.
EPFR’s Chua says that since the middle of December 2023, money has been flowing into U.S. bond funds for 51 weeks in a row. He used statistics from his company, which includes the last few weeks of last year, to say that the last weekly outflows happened “just prior to that.”
“People are still looking for a safe way to get a return on their investments,” Chua said over the phone. “Money-market funds have been yielding over 5% for a long time, and the 10-year Treasury yield is above 4% and near its highest level in years.” It’s also because people don’t know how inflation will move, when the Fed will cut rates again, or what effect Trump’s plans to cut taxes will have.
The analyst said that over the past year, more than four times as much money has gone into U.S. bond funds as into U.S. equity funds, based on a percentage of the total net assets of firms watched by EPFR. Chua says that U.S. bond funds have taken in 9% and U.S. stock funds have taken in 2%.
As traders looked at monthly readings from the Fed’s preferred PCE inflation measure, which came in below expectations for November, 2-, 10-, and 30-year Treasury yields went down on Friday. This was due to a rise in most U.S. government debt.
All three of the big U.S. stock indexes (DJIA +1.18% SPX +1.09% COMP +1.03%) closed sharply higher at the same time. Austan Goolsbee, president of the Chicago Fed, told CNBC that he still thinks interest rates will drop “a fair bit more” over the next 12 to 18 months. John Williams, president of the New York Fed, told the same network that Friday’s PCE inflation data was “encouraging.”
Also on Friday, the University of Michigan’s consumer-sentiment index showed that it had gone up for a fifth month in a row.
