Goldman Sachs Sees Record Deposits in Bond Mutual Fund. Goldman Sachs Group is receiving record deposits into a bond mutual fund that’s making money even though interest rates are rising. This gives the company a leg up in one of the few Wall Street businesses in which it hasn’t dominated.The Goldman Sachs Strategic Income Fund reached $10 billion during 2013. That was more than three times the new net cash taken in by company’s previous best selling mutual fund in any other calendar year since 1993. The $12.5 billion fund returned 5.3 percent through December 2012. The fund has quintupled in size, beating out 96 percent of its rivals.
By standing out among products where managers can invest across fixed income spectrum, the Strategic Income Fund is raising the bank’s profile in the $14.6 trillion U.S. mutual fund industry. These unconstrained funds have grown in popularity as investors turn away from conventional fixed income funds waiting for climbing rates and spurring losses in bonds as the Federal Reserve scales back asset buying programs.
It is believed a slowing stimulus could lead to rising interest rates. This reduces value of interest paying securities with fixed rates.
Shifting Deposits. Investors might not be appreciative of flexible funds at the moment. Following the 2008 financial crisis, their assets ballooned 20 times to $119 billion, carrying risks with limited exposure to rising interest rates.
High Yields. Goldman’s Strategic Income fell 2.5 percent in 2011, essentially trailing a whopping 95 percent behind the competition. Its go-anywhere funds has seen success where it has usually trailed its peers.
Uphill Climb. Goldman had an $81 billion pot in long term mutual funds, ranking 23rd with a less than one percent market share. Goldman attracted $12.8 billion in stock and bond mutual fund money, more than all but six U.S. firms, through November 2013.
Global Network. Overseeing over $900 billion, Goldman Sachs Asset Management recently raised $826 million for its first closed end fund. These funds have a fixed share number outstanding and usually trade on the exchange. Investment management accounted for 18 percent of Goldman’s revenue in the third quarter, as opposed to last year’s 14 percent.
Constructive Path. Throughout 2013, the fund has gambled on rising interest rates. Since May, yields on long term Treasury securities have surged. The yield on 10 year notes climbed to 2.88 percent from 1.93 percent in May 2013.
Municipal Selloff. The Strategic Income’s municipal bonds rose to six percent in October from zero in June. Municipal bonds overall fell 2.5 percent through the year because investors were skitterish about Detroit’s bankruptcy and Puerto Rico’s financial distress. One wager that isn’t returning is emerging market debt, which lost 5.6 percent in 2013. They have been hurt by the idea the Chinese economy has slowed and also by concerns that a Fed stimulus reduction could prompt yield seeking investors to pull funds from the emerging market economies.
China & Brazil. Analysts speculate that the interest rates in countries like Brazil and Mexico are currently too high, while stories about the collapse in China are exaggerated. Goldman estimates that as rates drop, bonds in Brazil will appreciate and currency will decline.