Seeking Alpha

Record outflows for bond funds in 2013

  • Bond mutual funds and ETFs had a record $86B in withdrawals last year, according to TrimTabs, the first net outflow since 2004, and topping the record $62B amid the bond market tumble in 1994.
  • Over the last seven months of 2013, bond funds saw $196B in withdrawals - a whopping figure, but coming against $1.2T in inflows from 2009-2012.
  • Stock funds saw inflows of $352B, breaking the $324B record set in 2000.
  • Related ETFs: AGG, BOND, BND, BSV, BIV, BLV, SCHZ, LAG, SAGG, ILTB, ISTB, GVI, GBF, FWDB, MINC, GIY, AGND, AGZD
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Comments (6)
  • financeminister
    , contributor
    Comments (1004) | Send Message
     
    So why do people say bonds are a risk free especially now that we're in a close to ZIRP environment. You loose money - when you exit and when you wait for maturity (inflation). I'm glad I never wasted my time with bonds...as a young investor who wasn't so sophisticated when I started. I just bought stocks since 2005. I'm glad I never got myself into bonds even though everyone around me kept hammering it in like a mantra. Every wealthmanager out there states you have to have bonds. You just can't do without'em. The other day, an advisor from Personal Capital analyzed my portfolio and said it's not balanced properly because I'm not in bonds and bonds are a safe investment. Well, I just asked him back how bonds are doing right now and then he realized that I knew what I was talking about and we had an interesting discussion after that. I think Modern Portfolio theory needs to tweaked a bit.

     

    Just my two cents on this bond thing...
    7 Jan 2014, 03:47 PM Reply Like
  • bostonm2000
    , contributor
    Comments (32) | Send Message
     
    You have 8 years of market experience? Man, you have truly seen it all.
    7 Jan 2014, 04:59 PM Reply Like
  • financeminister
    , contributor
    Comments (1004) | Send Message
     
    have you?
    7 Jan 2014, 10:10 PM Reply Like
  • DeepValueLover
    , contributor
    Comments (9764) | Send Message
     
    Gold should outperform bonds in 2014 if Yellen sticks to her promise to slowly end QE.
    7 Jan 2014, 07:49 PM Reply Like
  • awells1000
    , contributor
    Comments (20) | Send Message
     
    Bonds, or fixed income in general are neither good nor evil but rather just another asset class to consider in building a portfolio. A good point you make that you can sustain market risk in even the safest bond assets (treasuries) but the appeal to a long term investor is you still get income in most bond assets and the income should be relatively predictable. Not that a young investor should not be predominately in equities (they should be) but bonds can churn out consistent income that, if reinvested regularly, can simultaneously lower the volatility and increase the liquidity of a portfolio. 8 year AGG holders from Jan 2006 to Dec 2013 (reinvested) had a 43.24% total return or a 4.64% annual equivalent. Not horrific. The Dow has doubled that return over the same period but is close to an all time high and experiencing record inflows while the bond market has experienced record outflows. The debate will continue as to where the best CURRENT value can be found but a case could be made for a healthy bond allocation across the spectrums especially if bonds and equities begin to decouple as the taper materializes. When the market decides to go risk off and the equities market sells off, much of the risk off money pours back into bonds and rates could come back as an equities market correction occurs. The bond portion of the portfolio then becomes a cushion for that event. This assumes that the taper will initialize a return to negative correlation between stocks and bonds and I do not believe anyone knows the answer to that question for certain.
    7 Jan 2014, 07:52 PM Reply Like
  • financeminister
    , contributor
    Comments (1004) | Send Message
     
    Thanks for the information... when I considered bonds, it didn't sound as straight forward as most people who introduced them to me (you have to do considerable research... for instance, MBS bonds). Further, I didn't seem to see the benefit over stocks for a person with a long term horizon (starting at 24) with around 40+ years to accumulate shares and weather market volatility, recessions and drawn out down turns. I understand that bonds are seen as a safe haven but for someone who prefers equities, market sell offs present golden opportunities to get shares cheap throughout that long term horizon (I've adopted the dividend growth investing strategy to reduce risk and avoid timing and going overweight energy, healthcare and consumer staples). The only case where bonds made sense to me were for retirees or to-be retirees (five to ten years away) as they need principle protection with guaranteed income.
    7 Jan 2014, 10:22 PM Reply Like
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