by Tom Roseen.
The Russell 2000 Index and the Dow Jones Transportation Average notched record closes toward the end of Thomson Reuters Lipper’s fund-flows week ended July 5, 2017. Investors initially appeared to shrug off declines in the S&P 500 Index and the Dow Jones Industrial Average, which logged their largest one-day selloffs since mid-May as technology issues continued to take it on the chin. Investors appeared to embrace news of better-than-expected economic data and strengthening near-month crude oil prices during the fund-flows week. Nonetheless, a continued exodus out of tech stocks, increasing tensions in North Korea, and a late fund-flows week slide in crude oil futures rattled investors. Despite an upbeat manufacturing report, most of the broad-based U.S. indices suffered declines for the flows week, with the NASDAQ Composite Price Only Index declining 1.34% and the Russell 2000 Price Only Index losing 0.36%. The Dow Jones Industrial Average Price Only Index, rising 0.11% for the week, was the only U.S. broad-based index in positive territory.
For the fourth consecutive week investors were net redeemers of fund assets (including those of conventional funds and ETFs), redeeming $2.4 billion. While investors sought the relative safety of money market funds, injecting a little over $1.6 billion for the week, they were net redeemers of equity funds (-$3.3 billion), municipal bond funds (-$458 million), and taxable bond funds (-$242 million).
At the beginning of the fund-flows week the markets witnessed their worst daily decline in a month as the technology sector continued its selloff and weekly jobless claims rose some 2,000 from the prior week. Interest rate-sensitive securities also took a mild beating after hawkish statements from the Federal Reserve, the European Central Bank, and the Bank of Canada were circulated. Investors remained cautious on Friday, June 30, despite learning of the increase in May consumer spending and the better-than-expected Chicago PMI and June consumer sentiment reports. On Monday the Dow Jones Transportation Average and the Russell 2000 Index both logged record closes as investors cheered a rise in the June ISM manufacturing index and as crude oil futures rallied to their eighth consecutive upside trading day—their longest winning streak in seven years. However, even though the NASDAQ Composite and the S&P 500 Index made advances following the Independence Day holiday on Tuesday, concerns over North Korea’s successful ballistic missile test, a bigger-than-expected decline in May factory orders, and Russia’s refusal to deepen productions cuts led by OPEC (with oil futures witnessing their first loss in nine sessions) placed a pall over the markets.
For the third week in a row equity ETFs witnessed net outflows, handing back just a little more than $2.1 billion for the flows week. Authorized participants (APs) were net redeemers of domestic equity ETFs (+$4.4 billion), redeeming money from the group for the third consecutive week. However, for the twenty-eighth week running nondomestic equity ETFs witnessed net inflows, this past week attracting $2.3 billion. iShares Core MSCI EAFE ETF (+$1.5 billion), Financial Select Sector SPDR ETF (+$1.1 billion), and iShares Core S&P Total US Stock Market ETF (+$0.8 billion) attracted the largest amounts of net new money of all individual equity ETFs. At the other end of the spectrum SPDR S&P 500 ETF (-$2.2 billion) experienced the largest individual net redemptions, and PowerShares QQQ Trust 1 ETF (-$1.4 billion) suffered the second largest net redemptions for the week.
Conventional Equity Funds
For the second consecutive week conventional fund (ex-ETF) investors were net redeemers of equity funds, redeeming $1.3 billion. Domestic equity funds, handing back a little more less $2.3 billion, witnessed their twenty-seventh week of net outflows while posting a 0.39% negative return on average for the flows week. Meanwhile, their nondomestic equity fund counterparts, posting a minus 0.85% return on average, witnessed net inflows (+$1.0 billion) for the second week in three. On the domestic equity side fund investors shunned mid-cap funds (-$1.1 billion net), while on the nondomestic side they padded the coffers of international equity funds (+$1.0 million).
Conventional Fixed Income Funds
For the second week in a row taxable bond funds (ex-ETFs) witnessed net outflows, handing back however just $165 million. Corporate investment-grade debt funds witnessed the largest net inflows of the group, taking in $1.2 billion, while government-Treasury funds (+$155 million) witnessed the next largest net inflows. Corporate high-yield funds (-$1.0 billion) witnessed the largest net redemptions of the group for the week, bettered by flexible portfolio funds (-$459 million). While Lipper’s Inflation-Protected Bond Funds classification took in net new money for the thirty-fifth consecutive week (+$203 million) after hawkish comments from central bankers pushed yields higher during the week, bank loan funds (-$43 million) witnessed net outflows for the third week in a row. For the second week in three municipal bond funds (ex-ETFs) witnessed net outflows, handing back some $461 million.
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