November 11, 2016

U.S. Weekly FundFlows Insight Report: Despite Election Woes, Equity ETFs Take in Net New Money for the Week

by Tom Roseen

During the flows week ended Wednesday, November 9, 2016, markets continued their rollercoaster ride, punctuated by the longest daily losing streak the markets witnessed since 1980, concerns over the FBI’s reopening its investigation into Hillary Clinton’s email server, and Donald Trump’s turnaround in some opinion polls. Uncertainty hamstrung many investors ahead of the U.S. presidential election, despite economic reports during the week presenting a theme of balanced economic growth.

At the beginning of the flows week stocks continued their multiday decline, despite investors learning that factory orders rose 3% for September and continuing to focus on the upcoming U.S. election, the slight rise in the number of people applying for unemployment benefits in the prior week, and the ISM services index falling to 54.8% for October. By Friday, November 4, the S&P suffered its longest daily losing streak since December 1980 (nine consecutive days), tied to Trump’s rise in the polls. Many believed Trump would inject greater uncertainty into domestic and global economies if elected president than would his competitor. While coming in slightly lower than analyst expectations, the U.S. economy added 161,000 jobs for October, which was still seen as strong enough for the Federal Reserve Board to raise interest rates in December. Also weighing on markets during the week, oil futures prices continued to tank, declining 10% for the calendar week ended November 4, 2016, as oil producers made little progress in their attempts at a deal to cut future output. Over the weekend the FBI said its review of new emails from Clinton’s private server would not lead to charges, setting up on Monday the best one-day returns for stocks since March. On Election Day stocks continued to rally as many believed the markets were pricing in a Clinton win, since it would present fewer uncertainties and possibly more stability than a Trump win. However, on Wednesday, November 9, the world awoke to news of a surprise sweep by Republicans the night before, taking the presidency and control of both the House and the Senate. Perhaps equally as unexpected, U.S. stocks rallied on the news, led by a strong rise in financial, healthcare, and industrial stocks as investors identified sectors that might benefit from a Trump presidency, and the ten-year Treasury yield rose 19 basis points to a ten-month high above 2%, weighing on bond prices.

For the first week in three fund investors were net sellers of fund assets (including those of conventional funds and exchange-traded funds [ETFs]), redeeming, however, just $0.8 billion for the fund-flows week. Investors padded the coffers of equity funds (+$0.3 billion) and municipal bond funds (+$63 million) but were net redeemers of taxable bond funds (-$0.7 billion) and money market funds (-$0.4 billion).

For the fifth consecutive week equity ETFs witnessed net inflows, taking in $9.4 billion for the flows week. Authorized participants (APs) were net purchasers of domestic equity ETFs (+$10.0 billion), injecting money into the group for the third week in four. Meanwhile, for the first week in five nondomestic equity ETFs witnessed net outflows, this past week handing back $0.6 billion. SPDR S&P 500 ETF (+$6.5 billion), iShares Russell 2000 ETF (+$1.3 billion), and iShares Core S&P 500 ETF (+$1.2 billion) attracted the largest amounts of net new money of all individual equity ETFs. At the other end of the spectrum PowerShares QQQ Trust 1 (-$1.1 billion) experienced the largest net redemptions, and iShares MSCI Emerging Markets ETF (-$0.8 billion) suffered the second largest net redemptions for the week.

For the thirty-fifth week running conventional fund (ex-ETF) investors were net redeemers of equity funds, redeeming $9.1 billion from the group for the week. Domestic equity funds, handing back a little less than $7.6 billion, witnessed their fortieth consecutive week of net outflows despite posting a 3.27% return for the week. Meanwhile, their nondomestic equity fund counterparts, posting a 0.87% return for the week, also witnessed net outflows (-$1.5 billion) for the seventh week running. On the domestic equity side fund investors lightened up on large-cap funds (-$5.0 billion), while on the nondomestic side they shunned global equity funds (-$1.0 billion).

For the second consecutive week taxable bond funds (ex-ETFs) witnessed net outflows, handing back a little more than $3.4 billion. Corporate investment-grade debt funds witnessed the largest net inflows of the group, taking in $217 million, while government-Treasury funds witnessed the next largest net inflows (+$120 million). Corporate high-yield funds experienced the largest net outflows, handing back $1.8 billion for the week, bettered by flexible funds (-$0.9 billion). Despite many pundits’ still anticipating a December rate hike, bank loan funds witnessed their first week of net redemptions in ten, handing back some $99 million for the week. For the second week in three municipal bond funds (ex-ETFs) once again witnessed net inflows, this past week attracting $37 million.

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