What kinds of funds are retail investors interested in and what does it mean for the market?
Bond fund managers note that retail investors continue to like short and intermediate funds despite very low yields. And that has driven a lot of the opportunities to find value out of that segment of the market, according to Chris Ryon, a co-portfolio manager at Thornburg Investment Management.
“Typically, we’ve seen retail investors staying short, into short and intermediate mutual funds,” he said. “The yield curve has flattened because of this in one to five years, so you’re not getting paid as much as you were last year to extend from a one-year maturity to a five-year maturity.”
The yield curve might be flat from one to 10 years, but it’s still steep from 10 to 30 years, he added. And credit spreads are still somewhat fair in that range.
But to take advantage of that opportunity, you have to take on much more duration and market risk, Ryon said. And retail isn’t all that eager to do that.
“The opportunities in the market that still prevail,” he said, “are in those segments of the market that the retail investor really isn’t going into.”