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Thursday, September 20, 2012

QE3 Is Heaven's Gift for Bond Kings

News summary by MFWire's editors

The Fed's recently announced plan to buy $40 billion in government-backed mortgage debt is like "manna from heaven" for Gross, Gundlach, and TCW, writes Sam Forgione for Reuters. The newswire reports that the three firm's bond funds are up in the week since Ben Bernanke announced QE3.

The Reuters story says that "bond industry experts" think that going forward, the best returns may be found in so-called private-label MBS, rather than securities backed by the government. The TCW Total Return Bond Fund, the DoubleLine Total Return Bond Fund, and the Pimco Total Return Fund have all gained between 53 and 59 basis points in the week since the announcement.

But the top-performing bond fund over the last week is the Morgan Stanley Mortgage Securities Trust Fund, which is up 62 basis points.

"Investors trust the Fed." That's the theme Barron's columnist Brendan Conway strikes in this week's "Focus on Funds."

Conway writes that the Fed's actions have increased investor appetite for risky ETFs. This reflects market confidence that the Fed "will, at minimum, keep a floor under 'risk' assets," he writes.

The big index ETFs have drawn the most money since the announcement, but it's also been a good week for "risk" and "currency debasement" funds like the iShares MSCI Brazil and the SPDR Gold Trust. Meanwhile, traditional bond funds have fallen behind in the chase for AUM. 

Edited by: Chris Cumming

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