April 7, 2017

U.S. Fund-Flows Weekly Report: Equity Funds Suffer Worst Weekly Net Outflows of the Year

by Patrick Keon

Thomson Reuters Lipper’s fund macro-groups (including both mutual funds and exchange-traded funds [ETFs]) experienced net outflows of $3.8 billion for the fund-flows week ended Wednesday, April 5. Equity funds were responsible for almost all the net outflows as they saw $11.9 billion leave, while municipal bond funds (-$287 million) also made a contribution to the negative flows. Taxable bond funds (+$4.3 billion) and money market funds (+$4.1 billion) were responsible for the week’s net inflows.

The broad equity markets dipped slightly in trading for the fund-flows week; the S&P 500 Index and the Dow Jones Industrial Average retreated 0.35% and 0.05%, respectively. It was a mixed week for economic news. On the positive side fourth quarter 2016 GDP was revised upward to 2.1% from 1.9%. Inflation had its biggest annual increase in five years, confirming that the economy is continuing to grow. And U.S. companies added 263,000 jobs for March—the largest monthly increase in over two years. Negative news included the slowdown in consumer spending and manufacturing activity as well as the Federal Reserve’s announcing it will start to shed some quantitative-easing assets from its balance sheet before the end of the year. The Fed’s action in regard to its balance sheet will create uncertainty (will the action be drastic or gradual?), which is always a negative for the equity markets.

The $11.9 billion net outflow for equity funds was the group’s largest of the year so far. Both equity mutual funds (-$7.4 billion) and equity ETFs (-$4.5 billion) suffered significant net outflows for the week. Investors fled domestic equity funds in both the mutual fund universe (-$4.7 billion) and ETFs (-$8.3 billion). For nondomestic equity funds there were net outflows from mutual funds (-$2.7 billion) and net inflows for ETFs (+$3.8 billion).

ETFs (+$2.5 billion) accounted for the majority of the positive net flows for taxable bond funds, while mutual funds kicked in $1.8 billion of net inflows. Risky assets ruled the day on the ETF side; High Yield Funds and Emerging Markets Debt Hard Currency Funds took in $1.4 billion and $294 million of net new money, respectively. The High Yield Funds classification (+$983 million) was also a major player for mutual funds, and we saw that investment-grade debt funds had net inflows of $1.5 billion.

Municipal bond mutual funds had net outflows of $368 million for the week. Several of the national municipal debt fund peer groups accounted for the majority of the negative flows; General Muni Debt Funds, Short-Intermediate Muni Debt Funds, and Intermediate Muni Debt Funds saw $173 million, $78 million and $68 million leave, respectively.

Money market funds took in $4.1 billion of net new money for the week. Institutional U.S. Treasury Money Market Funds (+$2.2 billion) and Institutional U.S. Government Money Market Funds (+$1.6 billion) were the major contributors to these inflows.

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