Over the last few months, investors’ interest has evidently shifted from equity funds to taxable bond funds. Taxable bond funds registered their 12th consecutive week of inflows last week, according to the latest Lipper’s fund flow report. Additionally, data from the Investment Company Institute (ICI) for the week ended May 31 showed that taxable bond funds have seen no outflows this year.
Taxable bond funds are debt securities whose interest income is taxable at state or federal levels. Funds from this category have higher risks as well as better yields than government bond funds. Hence, investing in taxable bond funds might be a wise investment option for bond fund investors willing to take on relatively higher additional risk in search of higher returns.
Taxable Bond Funds Register Stable Inflows
As per the latest Lipper weekly fund flow report, equity-based funds witnessed strong outflows last week, whereas taxable bond funds caught investors’ imagination. According to Lipper, taxable bond funds registered net inflows of $7.3 billion for the week ended June 7, preceded by an inflow of $1.4 billion the week before. Additionally, ICI reported that taxable bond funds witnessed estimated inflows of $1.77 billion for the week ended May 31.
Moreover, President Trump’s confused approach continues to weigh on the equity market. In Britain, the inability of Prime Minister Theresa May’s Conservative party to secure a majority in the general election added to investors’ woes. Also, in its meeting last week, the European Central Bank (ECB) held interest rates at 0.0% and ruled out possibilities of additional rate cuts. Given such dissuading events, investors may prefer bond funds over equity funds.
Why Buy Taxable Bond Funds?
Taxable bonds are fixed-income securities issued by the country or state, whose income is not tax-exempt. These kinds of bonds are used to fund a particular project or facility. Taxable bond funds are likely to yield better results banking on improving manufacturing activity and continuing job creation. So, mutual funds with strong exposure to various taxable bonds are considered prudent investment options in an environment of steadily rising GDP.
