Sign up today and take advantage of member-only content — the kind of timely, cutting edge industry insight that only Money Management Executive can deliver.
  • Exclusive Online Only Content
  • Free Daily Email News Alerts
  • Asset Management Blogs

There's Gold in Fixed Income Funds. And Gold.

Lots of attention has been paid this year to the fact that investors are yanking billions after billions out of mutual funds that invest long-term in domestic stocks.

June: $20.4 billion out.

July: $20.2 billion out.

August: $26.3 billion out.

 In the last four reported weeks:

November 2: $3.3 billion out.

November 9: $3.7 billion out.

November 16: $135 million out.

November 22: $3.7 billion out.

The new object of desire is … the bond fund. Maybe, as Research Affiliates' numbers man Rob Arnott said Tuesday morning at the Super Bowl of Indexing it's because the Baby Boomers are about to retire in big numbers. And they are in the prime age now for moving into bonds.

Here's the bond fund look, mutual fund style:

November 2: $3.0 billion in.

November 9: $4.2 billion in.

November 16: $6.5 billion in.

November 22: $6.6 billion in.

But mutual funds are losing their grip on the bond-mad crowd, by BlackRock's count.

A year ago, exchange-traded funds accounted for 11 percent of the total amount investors put into fixed income mutual funds and ETFs.

That is up to 30 percent, now.

And it's likely to get more momentum. Because the numbers are clear.

If long-term interest rates stay at 2 percent, it makes little sense to pay out 1 percent (or more) in a mutual fund management fee.

By contrast, BlackRock figures, $10,000 put into a bond ETF might only cost 25 basis points, or 1/4 of one percent. An extra 3/4 of a percent stays in the investor's pocket.

These days, that's a big difference.

By Arnott's calculation, investors have to readjust their expectations and fight for each percent. Stocks may have returned 11 percent a year over several decades' time -- but 5 percent is going to be considered good, from hereon.

And bonds may hit a ceiling at 3 percent.

No wonder gold has become the new darling of high-return investing.

December 6, 2001: $274.10 an ounce

December 6, 2011: $1,708.45 an ounce

And there are plenty of highly liquid ETFs available at 25 basis points to get a piece of that.