by Tom Roseen.
The NASDAQ Composite Price Only Index notched another record close at the beginning of Thomson Reuters Lipper’s fund-flows week ended June 14, 2017. Investors appeared to breath a collective sigh of relief after ex-FBI director James Comey’s testimony to the Senate Intelligence Committee produced no new surprises in the ongoing investigation into Russian meddling in the U.S. presidential election and the European Central Bank kept its monetary policy unchanged. Nonetheless, later in the fund-flows week a mini meltdown in tech stocks, an unexpected outcome in Britain’s snap parliamentary election, and the Federal Reserve Board’s two-day policy meeting starting on June 13 kept many investors on edge. However, despite the carnage witnessed by tech stocks (the NASDAQ suffered a 1.22% decline for the fund-flows week), the Russell 2000 Price Only Index and the Dow Jones Industrial Average Price Only Index rose 1.50% and 0.95%, respectively.
For the first week in three investors were net redeemers of fund assets (including those of conventional funds and exchange-traded funds [ETFs]), redeeming $0.9 billion. But the headline numbers were misleading. While investors were net redeemers of money market funds, pulling out $15.7 billion for the week, they were net purchasers of equity funds (+$10.9 billion), taxable bond funds (+$3.5 billion), and municipal bond funds (+$0.4 billion).
On Tuesday the Dow and the S&P 500 both logged record closes as tech stocks reversed course following their two-day slide, even as investors focused on the beginning of the FOMC policy meeting and Attorney General Jeff Session’s testimony before the Senate Intelligence Committee. While the likelihood of a Fed interest rate hike was almost 100% according to the CME Group, investors were searching for hints on the timing of future interest rate hikes and how the Fed plans to unwind its current balance sheet. As was expected, on Wednesday, June 14, the Fed raised its key lending rate 25 basis points to between 1.00% and 1.25% and announced that it would start reducing its $4.5-trillion balance sheet this year; however, it was vague on details. Although the NASDAQ and the S&P 500 finished lower on the day after disappointing reports on inflation and retail sales and a large decline in near-month crude oil prices after American Petroleum Institute data showed an increase in U.S. oil and gasoline stockpiles, the Dow posted its second consecutive record close on the last day of the fund-flows week.
For the second week in three equity ETFs witnessed net inflows, taking in just a little over $17.7 billion for the flows week (their largest weekly net inflows since December 14, 2016). Authorized participants (APs) were net purchasers of domestic equity ETFs (+$14.6 billion), injecting money into the group for the second week in three. For the twenty-fifth week running nondomestic equity ETFs also witnessed net inflows, this past week attracting $3.1 billion. SPDR S&P 500 ETF (+$5.4 billion), iShares Core S&P 500 ETF (+$4.5 billion), and iShares Russell 2000 ETF (+$2.2 billion) attracted the largest amounts of net new money of all individual equity ETFs. At the other end of the spectrum Technology Select Sector SPDR ETF (-$555 million) experienced the largest individual net redemptions, and PowerShares QQQ Trust 1 ETF (-$496 million) suffered the second largest net redemptions for the week.
Conventional Equity Funds
For the twelfth consecutive week conventional fund (ex-ETF) investors were net redeemers of equity funds, redeeming $6.8 billion. Domestic equity funds, handing back a little more than $3.2 billion, witnessed their twenty-fourth week of net outflows despite posting a 0.28% return on average for the flows week. Meanwhile, their nondomestic equity fund counterparts, posting a minus 0.25% return on average, witnessed net outflows (-$3.6 billion) for the second consecutive week. On the domestic equity side fund investors continued to shun large-cap funds (-$2.2 billion net), while on the nondomestic side they withdrew cash from international equity funds (-$2.3 million) and global equity funds (-$1.3 billion).
Conventional Fixed Income Funds
For the second week in a row taxable bond funds (ex-ETFs) witnessed net inflows, however taking in just $835 million. Corporate investment-grade debt funds witnessed the largest net inflows of the group, taking in $1.1 billion, while flexible portfolio funds (+$750 million) and government-Treasury funds (+$206 million) witnessed the next largest net inflows. Balanced funds (-$1.4 billion) witnessed the largest net redemptions of the group for the week. Even though the long-end of the yield curve had been inching down, with the Fed pulling the trigger on Wednesday Lipper’s Inflation-Protected Bond Funds classification took in net new money for the thirty-second consecutive week (+$152 million) and bank loan funds (+$37 million) witnessed net inflows for the second week in a row. For the ninth week in ten municipal bond funds (ex-ETFs) witnessed net inflows, taking in some $310 million for the week despite posting a weekly loss of 0.16%.