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4 Funds That Investors Are Buying

Susan Dziubinski: Hi, I'm Susan Dziubinski with Morningstar. Which funds are investors buying in 2021? Joining me today to discuss the fund flows so far this year is Russ Kinnel. Russ is Morningstar's director of manager research and editor of Morningstar FundInvestor.

Hi, Russ, how are you?

Russ Kinnel: Good. Glad to be here.

Dziubinski: Nice to see you. Let's talk a little bit about fund flows for the year to date. Are we continuing to see the same trends we've been seeing, is anything standing out to you as a little bit different? What's going on?

Kinnel: Two of the biggest trends are bond funds--core bond funds--and equity index funds. So those are really not anything new. Among the smaller categories of note, bank-loan funds have had a big draw of assets and so have TIPS funds, inflation-protected funds.

Dziubinski: Let's talk a little bit about some of the more highly rated and hot-selling funds this year. The first being a TIPS fund, ironically: Vanguard Short-Term Inflation-Protected Securities that earns a Gold fund analyst rating from us and has raked in about $12 billion so far this year in assets. A popular category evidently, what's been going on with that fund?

Kinnel: In this case, most of that money is coming from Vanguard itself. Their target-date funds recently really dialed up their exposure to that fund, and it makes sense: If you're in retirement account, one of your threats is inflation, and a short-term TIPS fund means you have very little interest-rate risk and inflation protection. Yields and returns are pretty low, if inflation stays low, but you don't have the interest-rate risk that you would have with a longer-term TIPS fund.

Dziubinski: Another popular fund this year has been Pimco Income, one of the more popular taxable-bond funds. It's a multisector bond fund, and we assign it a Silver rating. What's been the attraction in particular this year with Pimco Income?

Kinnel: I think really the same attraction it's had for a long time, which is Dan Ivascyn produced really good performance. It's a fairly aggressive bond fund and takes on a fair amount of credit risk, but it's delivered good yield and good returns over the long haul. Since Bill Gross left [Pimco] Total Return, Pimco Income's really been their flagship, and investors continue to pour more money in.

Dziubinski: Russ, let's pivot over and talk about stock funds. Columbia Dividend Income has been pretty popular this year. And it recently brought on a new comanager. What's going on there?

Kinnel: Though it's a dividend-income fund, it really emphasizes quality. So, the yield isn't really any better than your typical large-value fund. But Scott Davis has done a really good job of stock selection, put in some good defensive qualities. The fund held up very nicely in 2020. I think that's part of the appeal. But it's just a very good, straightforward value fund with an experienced manager at the helm.

Dziubinski: And then lastly, Calamos Market Neutral Income. It's a relative value arbitrage fund. What's the attraction been there this year? And we have expressed a little bit of concern perhaps about the asset base there, right?

Kinnel: That's right. Obviously, when you look at a list of funds drawing a lot of assets, that's one of the concerns, and certainly for this strategy because it does two different things. One, convertible arbitrage, which means you buy the convertible bond and then you short the equity. And then it also does a hedged equity strategy. And of course, the convertible universe is not that big. And so it's a strategy that is sensitive to assets. So, one would hope they would close fairly soon. But it is a good fund, we rate it Bronze. As the market-neutral name implies, it's one that you can buy in hopes that it might have a positive return in a down market. No guarantees with market-neutral funds, but there's still that potential, and so people like that diversification potential.

Dziubinski: Well, Russ, thank you for your time today and for putting some of these high-inflow funds in perspective. We appreciate it.

Kinnel: You're welcome.

Dziubinski: I'm Susan Dziubinski with Morningstar. Thank you for tuning in.

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