August 4, 2017

U.S. Weekly FundFlows Insight Report: For the Week Fund Investors Turn to Conservative Assets

by Tom Roseen.

Shrugging off a selloff in tech stocks as investors began to question stretched valuations of some big high-rolling tech stocks, the Dow Jones Industrial Average posted a couple record highs and closed above the 22,000 mark for the first time in history during Thomson Reuters Lipper’s fund-flows week ended August 2, 2017. Investors cheered better-than-expected Q2 earnings results and initially strengthening oil prices (while keeping a watchful eye on the White House and Congress), but the enthusiasm did not extend to equity fund flows. Nonetheless, for the second consecutive week investors were net purchasers of fund assets (including those of conventional funds and ETFs), injecting $11.7 billion. While investors padded the coffers of money market funds (+$10.0 billion), taxable bond funds (+$1.8 billion), and municipal bond funds (+$144 million) for the week, they were net redeemers of equity funds (-$133 million).

Weekly Wrap-Up

At the beginning of the fund-flows week U.S. stocks finished generally higher as earnings-fueled gains from the likes of Boeing and Verizon pushed the Dow to new highs. A better-than-expected new durable goods orders report and rising oil prices outweighed the news that first-time unemployment benefits rose for the last week of July. Defeat of “skinny” repeal of Obamacare and disappointing earnings from Amazon weighed on the broader market, but the Dow once again hit a new high on Thursday. The Republican Congress’s failure to replace the Affordable Care Act—along with skittish investors taking some of their hard-won profits from FAANG stocks—contributed to the broader market declines. Despite some continued valuation concerns with tech issues and the shakeup at the White House, investors cheered the news that China construction activity was at its highest level since late 2013—seen as a boon for construction-related commodities. Oil closed above the $50/bbl mark after the U.S. stepped up sanctions against Venezuela following President Maduro’s government’s claim that it had won the ability to redraft Venezuela’s constitution. Later in the fund-flows week, shrugging off lower-than-expected reports on manufacturing (the July ISM Manufacturing Index fell to 56.3%) and inflation (the PCE Index was flat for June), the Dow continued its climb, helped in part by earnings-driven gains from Intel. The Dow closed the fund-flows week at a record 22,016.24, with handsome gains from Apple and positive news from ADP that private-sector hiring stayed strong in July helping to keep the rally on track.

Exchange-Traded Equity Funds

For the second week in a row equity ETFs witnessed net inflows, taking in a little less than $1.6 billion for the flows week. Authorized participants (APs) were net purchasers of domestic equity ETFs (but just to the tune of +$138 million), injecting money into the group for the second consecutive week. However, for the thirty-second week running nondomestic equity ETFs witnessed net inflows, this past week attracting $1.4 billion. iShares Russell 2000 ETF (+$2.0 billion), iShares Core MSCI Emerging Markets ETF (+$571 million), and iShares Core S&P 500 ETF (+$552 million) 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 (-$1.0 billion) experienced the largest individual net redemptions, and PowerShares QQQ Trust 1 ETF (-$0.9 billion) suffered the second largest net redemptions for the week.

Exchange-Traded Fixed Income Funds

For the fourth week running fixed income ETFs attracted net new money, this past week attracting some $1.9 billion. APs padded the coffers of corporate investment-grade debt ETFs (+$754 million) and corporate high-yield debt ETFs (+$577 million) while turning their backs on government/Treasury ETFs (although redeeming only $27 million net). iShares iBoxx $ High Yield Bond ETF (+$487 million) and iShares iBoxx $ Investment Grade Corporate Bond ETF (+$358 million) attracted the largest amounts of net new money of all individual fixed income ETFs, while SPDR Bloomberg Barclays High Yield Bond ETF (-$73 million) handed back the largest individual net redemption for the week.

Conventional Equity Funds

For the sixth consecutive week conventional fund (ex-ETF) investors were net redeemers of equity funds, redeeming $1.7 billion. Domestic equity funds, handing back a little less than $2.4 billion, witnessed their thirty-first week of net outflows while posting a 0.46% negative return on average for the flows week. Meanwhile, their nondomestic equity fund counterparts, posting a 0.30% return on average, witnessed net inflows (+$0.7 billion) for the fourth week in five. On the domestic equity side fund investors shunned large-cap funds (-$1.2 billion net), while on the nondomestic side they padded the coffers of international equity funds (+$696 million).

Conventional Fixed Income Funds

For the first week in three taxable bond funds (ex-ETFs) witnessed net outflows, but just handing back $184 million. Corporate investment-grade debt funds and government/Treasury funds witnessed the only net inflows of the group, taking in $731 million and $17 million, respectively. Corporate high yield funds (-$0.4 billion) witnessed the largest net redemptions for the week, bettered by balanced funds (-$0.2 billion). Lipper’s Inflation-Protected Bond Funds classification witnessed its thirty-ninth consecutive week on net inflows (although taking in just $51 million this last week) after the PCE Index (the Fed’s preferred inflation gauge) was flat for June, and bank loan funds (-$107 million) witnessed net outflows for the first week in three. For the third consecutive week municipal bond funds (ex-ETFs) witnessed net inflows, taking in just $90 million.

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