The Markets September 13, 2013

Investors Flee from Bond Funds in August

Mutual fund investors withdrew $15.5 billion from taxable-bond funds and $11.8 billion from municipal-bond funds in August, according to Morningstar Inc.
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In the September issue of its report “Morningstar Direct: U.S. Open-End Asset Flows Update,” Morningstar detailed how since the end of April, investors have withdrawn $81.9 billion from bond funds, with taxable-bond funds losing 1.6% of beginning assets to outflows and municipal-bond funds losing 6.6% to outflows.

The report also observed that interest rates climbed all summer, with the 10-year Treasury flirting with a 3% yield. All of the other category groups, including U.S. and international equity, saw positive flows. Money market funds gained $20 billion.

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Strong outflows from municipal-bond funds in recent months rival the strong flows seen in 2011. According to the report, while the most-recent wave of outflows may be a reflection of panic over the Detroit bankruptcy filing, it may also be nothing more than a move away from interest-rate risk. Because of the low default rate of municipals, said Morningstar, they primarily have interest-rate risk exposure. Therefore, outflows from this category are similar in relative size to outflows from Treasury bond funds.

The top five top-flowing funds for August were the Vanguard Total Stock Market Index Fund, the Oakmark International Fund, the Oppenheimer Senior Floating Rate Fund, the J.P. Morgan Strategic Income Opps Fund and the PIMCO Short Term Fund. The top five bottom-flowing funds for August were the PIMCO Total Return Fund, the Vanguard GNMA Fund, the DoubleLine Total Return Bond Fund, the Vanguard Inflation-Protected Securities and the PIMCO Real Return Fund.

 

Products September 13, 2013

R-Squared Debuts Portfolio Risk Tools

The risk management firm has released R-Squared Risk Solutions, tools to manage and forecast portfolio risk.
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The tools combine R-Squared’s range of equity risk models with PRISM, the firm’s proprietary Portfolio Risk Management and risk-adjusted Performance Attribution system. The new risk models incorporate the most recent techniques of the principals of R-Square Risk Management for minimizing estimation error and generating better portfolio risk forecasts.

A variety of geographic regions are covered, including Europe, the U.S., global developed markets and global emerging markets, and are available in different base currencies.

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Portfolio managers can use these models to distinguish their deliberate factor tilts from any unintended risks in their portfolios, according to Jason MacQueen, founder of R-Squared Risk Management Ltd. “They can also be used to determine the sensitivity of their portfolios to a wide variety of macroeconomic variables and currency risks,” he said. “By including a small number of statistical factors, we ensure that there is no missing systematic risk, thereby giving managers more accurate forecasts of portfolio risk and tracking error.”

The R-Squared Risk Solutions provide a standard set of Risk Reports, which can be customized to highlight the more relevant results for managers and investors, including a summary, portfolio risk decomposition by holdings and portfolio risk decomposition by factors. Users can run risk-adjusted performance attribution analyses to identify consistent sources of performance in their portfolios over time, and may also identify the number and size of the truly Independent bets in a portfolio.

The goal of R-Squared is to help managers improve investment performance by ensuring that their portfolio selection skills are harnessed efficiently by aligning risk with expected return and eliminating unwanted risk.

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