September 29, 2017

ETFs Suffer First Weekly Net Redemption in 12 Weeks

by Tom Roseen

Continued geopolitical concerns, accompanied by a hawkish tone set by Federal Reserve officials following the September FOMC meeting, weighed heavily on investors during the fund-flows week ended September 27, 2017. For the first week in 12 authorized participants (APs, ETF investors) were net redeemers of ETF assets, redeeming a net $3.1 billion. While APs injected a net $326 million and $85 million into taxable bond ETFs and municipal bond ETFs, respectively, for the week, they were net redeemers of equity ETFs, pulling out a net $3.5 billion, for their first overall weekly net redemption in five weeks.

Investors appeared to shrug off reports that showed initial jobless claims had fallen sharply the prior week and that the Philadelphia Fed’s manufacturing index rose more than expected. Investors instead focused on the escalating saber rattling by North Korea and the U.S, a rotation out of big-name tech stocks, and the Republican party’s inability to repeal and replace Obamacare.

Later in the fund-flows week, talk of near-term rate hikes and news of a sweeping tax-reform package made the headlines, propping up the market and pushing bank stocks and small-cap issues higher. Investors baled on big tech stocks and rotated into commodity and retail stocks as portfolio managers began reducing risk and some investors began bidding up safe-haven issues. For the fund-flows week the Russell 2000 Price Only Index gained 2.73%—posting on September 27 a new record close and its largest one-day percentage gain since March 1, while the Dow Jones Industrial Average closed down 0.32% for the fund-flows week.

For the week APs padded the coffers of international equity ETFs (+$643 million), financial/banking ETFs (+$608 million), and gold and natural resources ETFs (+$464 million) while turning their backs on large-cap ETFs (-$4.6 billion). The top individual attractors of equity ETF assets for the fund-flows week were SPDR Gold ETF (GLD, +$768 million), iShares Nasdaq Biotechnology ETF (IBB, +$541 million), and SPDR Dow Jones Industrial Average ETF (+$525 million), while SPDR S&P 500 ETF (SPY, -$2.6 billion) handed back the largest individual net redemption.

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