April 7, 2017

Chart of the Week: Investors Flee Equity Funds

by Patrick Keon

Equity funds shed $11.9 billion in assets for the week ended April 5—for the group’s worst weekly net outflows of 2017, as both equity mutual funds (-$7.4 billion) and equity exchange-traded funds (ETFs) (-$4.5 billion) had their largest weekly net outflows of the year. The outflows from equity mutual funds were part of a long-term trend (12 of the 14 weeks this year), but the net outflows from equity ETFs were a new phenomenon. The group had net outflows in two of the last three weeks, but before that it had a string of seven straight weekly net inflows, during which time it took in $58.2 billion of net new money.

This fund-flows activity lends credence to the theory that the Trump rally may have run out of gas. There was enthusiasm for Donald Trump’s campaign promises of corporate tax cuts and less regulation that investors believed would spur the economy and therefore the equity markets. But with the recent run of other issues the administration has been dealing with (healthcare legislation, Syria, North Korea, the Supreme Court vacancy, Russian spying, Obama administration spying), it appears the street is losing faith about when or if these campaign promises will be implemented. The Dow Jones Industrial Average (-0.35%) and the S&P 500 Index (-0.05%) both retreated slightly for the fund-flows week ended April 5 and have been flat over the last month. By comparison, the Dow and the S&P 500 gained 6.85% and 5.55%, respectively, during the first two months of 2017.

In the week’s activity the net outflows came from both domestic equity funds (-$4.7 billion) and nondomestic equity funds (-$2.7 billion) for mutual funds, while for ETFs there were net outflows for domestic equity funds (-$8.3 billion) and net inflows for nondomestic equity funds (+$3.8 billion). SPDR S&P 500 ETF (SPY, -$7.0 billion) was responsible for the lion’s share of the net outflows from individual domestic equity ETFs, while iShares MSCI EAFE ETF (EFA, +$1.3 billion) and iShares Core MSCI EAFE (IEFA, +$462 million) were the largest individual contributors to nondomestic equity ETF net inflows. On the mutual funds side diversified equity funds accounted for the bulk of the net outflows for both domestic equity funds (-$4.4 billion) and nondomestic equity funds (-$2.6 billion).

 

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