April 28, 2017

U.S. Weekly FundFlows Insight Report: Funds Attract New Money for the Week on Increased Optimism

by Tom Roseen

With the first round of the French presidential elections completed during the fund-flows week ended April 26, 2017, investors crossed off another uncertainty as a strong showing by centrist Emmanuel Macron helped ease some ongoing concerns of further isolationism among European Union members. The following relief rally and prospects of the White House releasing its proposed tax plan pushed the NASDAQ Composite to new record highs, breeching the 6,000 mark for the first time. Despite continued concerns of a potential U.S. government shutdown and on rising tensions in the Korean Peninsula, investors lightened up on safe-haven assets, which weighed on gold, the Japanese yen, and Treasury prices. The CBOE volatility index (VIX) declined 23% during the flows week to close at 10.85 on Wednesday, April 26. For the flows week the U.S. broad-based indices rallied, with the Russell 2000 Price Only Index, rising 3.83%, witnessing the largest gain of the group.

For the second week in three fund investors were net purchasers of fund assets (including those of conventional funds and exchange-traded funds [ETFs]), injecting $24.0 billion. Investors were net purchasers of money market funds (+$10.4 billion), equity funds (+$7.2 billion), taxable bond funds (+$6.3 billion), and municipal bond funds (+$0.1 billion).

At the beginning of the fund-flows week investors appeared to be more optimistic despite learning that first-time jobless claims rose 10,000 more than the previous week to 244,000. They welcomed a spate of better-than-expected earnings reports, news that the number of out-of-work people collecting unemployment checks fell to a 17-year low, and an announcement that the U.S. government is investigating the impact of foreign steel imports on national security. President Donald Trump’s commitment on Friday, April 21, to release his tax-cut plan the following week helped calm the markets ahead of France’s presidential elections and after an attack on the Champs-Elysees in France. Markets rallied globally after Macron led the field in the first round of the French presidential election over the weekend. Upbeat Q1 earnings reports from the likes of Caterpillar and DuPont helped push the NASDAQ Composite to its twenty-fourth record close in 2017 so far–6,025.49–on Tuesday. Market participants took their collective foot off the pedal on Wednesday, April 26, after Trump officials released the one-page outline of the tax reform plan that was light on details and as investors focused on the likelihood of a government shutdown this coming weekend.

For the third week in a row equity ETFs witnessed net inflows, attracting just a little under $12.7 billion for the flows week. Authorized participants (APs) were net purchasers of domestic equity ETFs (+$11.0 billion), injecting money into the group for the second consecutive week. For the eighteenth week running nondomestic equity ETFs witnessed net inflows, this past week attracting $1.6 billion. iShares Core S&P 500 ETF (+$3.4 billion), SPDR S&P 500 ETF (+$2.8 billion), and iShares Russell 2000 ETF (+$2.6 billion) attracted the largest amounts of net new money of all individual equity ETFs. At the other end of the spectrum VanEck Vectors Gold Miners ETF (-$823 million) experienced the largest individual net redemptions, and VanEck Vectors Junior Gold Miners ETF (-$375 million) suffered the second largest net redemptions for the week.

For the fourth consecutive week conventional fund (ex-ETF) investors were net redeemers of equity funds, redeeming $5.5 billion. Domestic equity funds, handing back a little more than $4.8 billion, witnessed their seventeenth week of net outflows despite posting a 2.35% return on average for the flows week, while, their nondomestic equity fund counterparts, posting a 3.17% return on average for the week, witnessed net outflows (-$0.7 billion) for the second week running. On the domestic equity side fund investors continued to lighten up on large-cap funds (-$3.8 billion net), while on the nondomestic side they shunned global equity funds (-$0.9 billion).

For the second consecutive week taxable bond funds (ex-ETFs) witnessed net inflows, taking in $3.2 billion. Corporate investment-grade debt funds witnessed the largest net inflows of the group, taking in $3.8 billion, while flexible funds (+$190 million) and balanced funds (+$180 million) witnessed the next largest net inflows. Corporate high-yield funds (-$0.8 billion) and government-mortgage funds (-$233 million) witnessed the largest net redemptions of the group for the week. On fairly strong economic reports during the week, it wasn’t too surprising to see Thomson Reuters Lipper’s Inflation-Protected Bond Funds classification taking in net new money for the twenty-fifth consecutive week (+$26 million) and bank loan funds witnessing their twenty-fourth week of net inflows, attracting some $206 million for the week. For the third week in a row municipal bond funds (ex-ETFs) witnessed net inflows, taking in some $217 million for the week.

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