February 17, 2017

U.S. Weekly FundFlows Insight Report: For the Fourth Week in a Row Fund Investors Inject Net New Money into Conventional Funds and ETFs

by Tom Roseen

The major broad-based indices rallied to new record highs on each of the five trading days during the fund-flows week ended February 15, 2017. Investors cheered President Donald Trump’s commitment to roll out his tax plan in the coming weeks, extending the market rally that has been ongoing since his election in November. Banks and industrial stocks have fared well, with investors betting that greater deregulation and tax cuts, along with a rising-interest-rate environment and massive infrastructure development will be a boon for investors and the economy. For the fourth consecutive week fund investors were net purchasers of fund assets (including those of conventional funds and exchange-traded funds [ETFs]), injecting $14.3 billion. While investors were net redeemers of money market funds (-$2.6 billion), they were net purchasers of equity funds (+$11.5 billion), taxable bond funds (+$4.9 billion), and municipal bond funds (+$480 million).

At the beginning of the fund-flows week energy and financial stocks led the way after Trump hinted about a “phenomenal” tax plan he’ll be rolling out soon and after a report showed U.S. demand for gasoline was on the rise. In addition, investors cheered a report that weekly jobless claims fell 12,000 for the week prior (hitting the second lowest level since the economic recovery began almost eight years ago). On Friday, February 10, the Dow Jones Industrial Average, the S&P 500 Index, and the NASDAQ posted their third straight week of gains, with investors shrugging off news that the cost of imported goods jumped 0.4% for January, mostly on the rise in oil prices. The International Energy Agency reported that OPEC members reached a record compliance of 90% of the recently agreed-upon output cuts. On Tuesday, February 14, Federal Reserve Chair Janet Yellen signaled that the central bank could raise rates sooner rather than later, sending stocks to their fourth consecutive record close. Banks were the primary benefactor of the news, while interest rate-sensitive stocks such as utilities and real estate sagged. Yellen’s upbeat view of the economy, leaving a slight possibility of a March rate hike on the burner, pushed stocks to new highs on Wednesday for the fifth day in a row, marking the longest consecutive record-setting streak for all three indices since January 1992. Even though oil prices were under pressure on the last trading day of the fund-flows week after the American Petroleum Institute reported a larger-than-expected climb in U.S. crude oil supplies, the stronger-than-expected retail sales for January kept the winning streak intact.

For the third week in a row equity ETFs witnessed net inflows, attracting just a little over $12.0 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 second week in three. For the seventh week running nondomestic equity ETFs also witnessed net inflows, this past week attracting $2.0 billion. SPDR S&P 500  ETF (+$3.2 billion), Financial Select Sector SPDR ETF  (+$1.2 billion), and iShares Core MSCI Emerging Markets ETF (+$0.9 billion) attracted the largest amounts of net new money of all individual equity ETFs. At the other end of the spectrum SPDR Dow Jones Industrial Average ETF (-$2.1 billion) experienced the largest individual net redemptions, and PowerShares QQQ Trust 1 (-$530 million) suffered the second largest net redemptions for the week.

For the sixth week in seven conventional fund (ex-ETF) investors were net redeemers of equity funds, redeeming $0.6 billion. Domestic equity funds, handing back a little less than $1.1 billion, witnessed their seventh week of net outflows, and they posted a 2.32% return on average for the flows week. Meanwhile, their nondomestic equity fund counterparts, posting a 1.41% return on average for the week, witnessed net inflows (+$481 million) for a second consecutive week. On the domestic equity side fund investors continued to flee large-cap funds (-$1.3 billion net), while on the nondomestic side they embraced international equity funds (+$1.1 billion).

For the seventh week in a row taxable bond funds (ex-ETFs) witnessed net inflows, attracting $3.3 billion. Corporate investment-grade debt funds witnessed the largest net inflows of the group, taking in $2.3 billion, while flexible portfolio funds (+$381 million) and corporate high-yield debt funds witnessed the next largest net inflows (+$222 million). U.S. mortgage funds (-$174 million) and government/Treasury mortgage funds (-$13 million) witnessed the only net redemptions of the group for the week. With Yellen’s sanguine view of the economy, it wasn’t too surprising to see Thomson Reuters Lipper’s Inflation-Protected Bond Funds classification taking in money for the fifteenth consecutive week (+$73 million) and bank loan funds witnessing their fourteenth week of net inflows, attracting some $744 million for the week. For the sixth consecutive week municipal bond funds (ex-ETFs) witnessed net inflows, this past week taking in $468 million.


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