June 9, 2017

Fund Investors Continue to Shun Equities While Embracing Bond Funds

by Tom Roseen

Despite relatively strong equity index returns for the Thomson Reuters Lipper fund-flows week ended June 7, 2017, investors were net redeemers of equity funds. Mutual fund investors pulled out $3.1 billion (for their eleventh consecutive week of net outflows) and authorized participants (“APs”, exchange-traded fund [ETF] investors) redeemed a net $1.9 billion (for a second week of net redemptions in three). Equity investors appeared to take a wait-and-see approach ahead of what the mainstream media were referring to as “Super Thursday,” when ex-FBI director James Comey was scheduled to testify before Congress, the European Central Bank held its policy meeting, and the U.K. held general elections.

APs Are Still Interested in Nondomestic Equity ETFs

Interesting though, while mutual fund investors shunned both domestic and nondomestic equity funds on increased geopolitical concerns and another devastating terrorist attack near London Bridge over the weekend, APs were net purchasers of nondomestic equity ETFs. They injected some $1.4 billion for the flows week. iShares Core MSCI Emerging Markets ETF (+$300 million), iShares MSCI EAFE ETF (+$288 million), and iShares MSCI South Kora Capped ETF (+$173 million) attracted the largest individual inflows of the subgroup.

Is It Risk On for Fixed Income Products?

Shrugging off a slight move toward safe-haven plays during the week and a high probability of an interest rate hike by the Federal Reserve Board at its upcoming meeting on June 14, both mutual fund investors (+$3.5 billion) and APs ($3.9 billion) were net purchasers of fixed income assets. While government-Treasury funds (+$1.4 billion) collectively saw net new money enter their coffers, riskier fixed income products witnessed the lion’s share of the net inflows: corporate investment-grade debt funds took in some $3.7 billion, international & global funds attracted $1.4 billion, and corporate high-yield funds drew in a net $586 million. On the ETF side two individual funds accounted for the majority of net inflows to government-Treasury funds: iShares 20+ Treasury Bond ETF (+$835 million) and iShares 3-7 Treasury Bond ETF (+$388 million).

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