Nervous investors pulled a net $8.9 billion from mutual funds (including conventional funds and exchange-traded funds [ETFs]) in the week ended June 5 as they looked for hints about when the Federal Reserve might begin scaling back its $85-billion bond-buying program.
The DJIA posted a May gain of 1.86% and the S&P 500 Index was up 2.08% for the month — the seventh and sixth consecutive months of upside performance. But markets have struggled with the dilemma that good economic news will indicate to the Fed that it might be time to start tapering the quantitative easing programs (considered to be a major contributor to the market rally), while poor economic news will support keeping the easing in place.
So good economic news — such as the May 31 announcements of a better-than-expected final reading of the May Thomson Reuters/University of Michigan’s consumer sentiment index (up to 84.5, its strongest showing since 2007) and on the best reading for the Chicago PMI in more than a year — produced a market tumble. In contrast, the markets jumped on June 3 after the ISM manufacturing index declined to 49.0 for May—its first contraction reading since November.
Among mutual funds, equity funds handed back a net $2.3 billion (for their second consecutive week of net outflows), fixed income funds gave back some $9.1 billion net (for their second largest outflows since Lipper began tracking weekly flows in 1992), and municipal bond funds saw $1.5 billion in outflows (their largest weekly net outflows since January 26, 2011).
However, money market funds pulled in slightly less than $4.0 billion net for the week.
For the second consecutive week, equity ETFs experienced net outflows, handing back some $2.8 billion, while their conventional mutual fund brethren took in $0.5 billion—for their twenty-second consecutive week of net inflows (and bringing their year-to-date total to +$110.7 billion net).
Given the recent concerns over China’s slowing growth rate, interest-rate-sensitive securities and defensive issues, and tapering quantitative easing, it wasn’t surprising to see SPDR S&P 500 ETF (-$2.6 billion), iShares MSCI Emerging Markets Fund (-$2.2 million), and Health Care Select Sector SPDR (-$0.5 million) at the bottom of the pack for ETFs.
With risk-on trades still being favored by some, net inflows for ETFs were witnessed by ProShares Ultra Russel 2000, garnering $874 million of net new money; PowerShares QQQ Trust 1, witnessing net inflows of $598 million; and UBS Fisher Enhanced Big Cap Growth ETN, taking in some $579 million.
While their interest was waning, mutual fund (ex-ETFs) investors kept their focus on equity mutual funds, injecting a net $0.5 billion for the week. Domestic equity funds witnessed their first net redemptions in six weeks, handing back $769 million, while their nondomestic equity fund counterparts took in almost $1.3 billion, bringing in net new money for 23 of the last 24 weeks.
On the domestic side, investors appeared to give a cold shoulder to large-cap funds, redeeming some $628 million net from the group. Mutual fund investors once again embraced emerging market funds, injecting a net $1.9 billion. With Treasury rates on the rise, investors turned their backs on corporate high-yield funds, redeeming a net $3.2 billion (the group’s largest weekly net redemption since Lipper started tracking weekly flows in 1992).
Keeping their trend alive, however, adjustable-rate loan participation funds took in $873 million net for the week for their fifty-first week of consecutive net inflows. Caught up in the exodus from Treasuries and govies, municipal debt funds (ex-ETFs) experienced net outflows for the second week in a row, handing back some $1.4 billion (their largest net redemptions since the week ended December 19, 2012).