The economic and financial news landscape was mostly green and pleasant in the week ended Wednesday, July 24. Mutual fund investors pulled cash out of money market funds and favored equity and taxable bond funds. Municipal bond funds continued to hemorrhage assets, but equity ETFs continued to be in favor.
During the week, the Dow Jones Industrial Average and S&P 500 Index hit their 28th and 23rd, respectively, record closes for the year, despite hearing disappointing Q2 earnings news from tech stalwarts Intel Corp. and IBM. On Friday, July 19, the S&P 500 capped a fourth consecutive week of gains.
However, earnings news was mostly positive, contradicting some gloomy forecasts. With about 146 of the S&P 500 constituents reporting Q2 results as of July 24, about 66% have beaten analyst estimates, according to Thomson Reuters Proprietary Research.
Turning to the economy, investors learned of a significant decline in new jobless claims and that the Fed’s tapering timetable was not on a preset path. Investors also cheered news that June new-home sales rose to a five-year high, preliminary Eurozone PMI data were stronger than expected, and the FHFA index showed home prices were up 7.3% in May from a year ago. However, there were concerns over a reported decline in existing-home sales, slowing factory output in China and weakness in the Richmond manufacturing Fed survey.
Nonetheless, equity and taxable bond fund investors kept the pedal to the metal, injecting a net $10.0 billion into the funds business (including conventional funds and exchange-traded funds [ETFs] and excluding money market funds). Equity funds attracted a net $5.4 billion (for their fourth consecutive week of net inflows) and fixed income funds took in some $4.6 billion net (for their second week in a row of net inflows).
Money market funds handed back some $12.7 billion net for the week (their first weekly redemption in five), and municipal bond funds bled assets (for the ninth consecutive week), succumbing to net outflows of $1.2 billion. With the large money market redemptions swamping the inflows to both equity funds and taxable bond funds, investors were net redeemers for the week, withdrawing a little less than $4 billion.
For the fourth consecutive week, equity ETFs experienced net inflows, attracting some $2.1 billion, while their conventional mutual fund brethren took in $3.3 billion—for equity ETFs’ 29th consecutive week of net inflows (bringing their year-to-date total to +$115.6 billion net). As in the prior weeks, investors added money to a few “risk-on” assets as well as to benefactors of interest rate increases. So, it wasn’t surprising to see Financial Select Sector SPDR (+$487 million), WisdomTree Japan Hedged Equity Fund (+$399 million), and iShares Russell 2000 ETF (+$372 billion) at the top of the leader board for ETFs. At the bottom of the pile were SPDR S&P 500 ETF, handing back some $1.3 billion net; iShares MSCI USA Minimum Volatility ETF, witnessing net outflows of $0.6 billion; and ProShares QQQ Trust 1, giving back some $0.3 billion.
Mutual fund (ex-ETF) investors remained enamored of equity mutual funds, injecting a net $3.3 billion into them for the week (their fourth consecutive week of inflows in excess of $3.0 billion). Domestic equity funds attracted net inflows for the sixth consecutive week, taking in $2.4 billion, while their nondomestic equity fund counterparts took in $1.0 billion, attracting net new money for the eighth consecutive week. On the domestic side investors continued to favor large-cap funds, adding some $1.3 million net to the group.
Despite continued news of China’s slowing economy, mutual fund investors once again appeared to prefer emerging market funds over other world equity funds, injecting a net $0.3 billion into this group. With Treasury rates on the rise, investors turned their backs on government Treasury funds, government Treasury & mortgage funds, and government mortgage funds, redeeming a net $164 million, $183 million, and $187 million, respectively.
Keeping their trend intact, however, the adjustable-rate loan participation funds group attracted $1.8 billion net for the week—for the 58th week of consecutive net inflows, the strongest on record since Lipper began tracking weekly flows for this classification on August 13, 2003. Caught up in the exodus from Treasuries and govies and the drama surrounding the nation’s largest city filing for bankruptcy (Detroit), municipal debt funds (ex-ETFs) experienced net outflows for the ninth week in a row, handing back some $1.2 billion.