September 29, 2017

U.S. Weekly FundFlows Insight Report: Money Market Funds Attract the Largest Net Flows for the Week

by Tom Roseen

For the third week in four investors were net purchasers of fund assets (including those of conventional funds and ETFs), injecting $7.3 billion. Investors padded the coffers of money market funds (+$16.1 billion), taxable bond funds (+$452 million), and municipal bond funds (+$378 million) for the week, while they were net redeemers of equity funds (-$9.7 billion). Investors remained cautious during the fund-flows week ended Wednesday, September 27, 2017, as the rhetoric by both the United States and North Korea intensified and as the Fed continued to telegraph its intent to hike interest rates one more time in 2017 and begin unwinding its $4.5-trillion balance sheet in October. Nonetheless, talk of near-term rate hikes and President Donald Trump’s sweeping tax overhaul pushed bank stocks and small-cap issues higher during the week. 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.

Market Wrap-Up

At the beginning of the fund-flows week the Dow snapped its nine-day winning streak after the Federal Reserve Board left rates unchanged on Wednesday, September 20, but indicated its plan to deliver another rate hike in 2017. Investors shrugged 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. On Friday healthcare shares rebounded to offset earlier declines after Senator John McCain (R-AZ) announced he wouldn’t sign the latest healthcare bill. The Russell 2000 index closed at a record high that day as some investors began rotating out of big-name tech stocks and into lagging sectors. Increased saber rattling by North Korea and the U.S. weighed on markets on Monday as North Korean foreign minister Ri Yong Ho said Pyongyang has the right to shoot down U.S. bombers because of Trump’s recent comments during his address to the United Nations General Assembly. Investors continued to bale on big tech stocks and rotate into commodity and retail stocks as portfolio managers began reducing risk and some investors began bidding up safe-haven issues. On Tuesday investors ignored Fed Chair Janet Yellen’s caution against moving too slowly on interest rates and pushed the Russell 2000 index to yet another record close as investors continued to focus on tax reform. On Wednesday the Dow snapped its four-day losing streak, and the Russell 2000 notched another record high after the president and congressional republicans announced a sweeping tax overhaul. While the dollar strengthened and gold lost some of its shine, near-month crude oil prices gained after the U.S. Energy Information Administration said domestic crude supplies had fallen unexpectedly for the week ended September 22.

Exchange-Traded Equity Funds

For the first week in five equity ETFs witnessed net outflows, handing back a little more than $3.5 billion for the flows week. Authorized participants (APs) were net redeemers of domestic equity ETFs (-$4.3 billion), removing money from the group for the first week in five. However, for the third week in a row nondomestic equity ETFs witnessed net inflows, this past week taking in $0.8 billion. SPDR Gold ETF (+$768 million), iShares Nasdaq Biotechnology ETF (+$541 million), and SPDR Dow Jones Industrial Average ETF (+$525 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 (-$2.6 billion) experienced the largest individual net redemptions, and iShares Core S&P 500 ETF (-$2.1 billion) suffered the second largest net redemptions of the week.

Exchange-Traded Fixed Income Funds

For the twelfth week running fixed income ETFs attracted net new money, this past week taking in some $326 million. APs padded the coffers of corporate high-yield ETFs (+$590 million) and corporate investment-grade debt ETFs (+$554 million) while turning their backs on corporate flexible ETFs, redeeming $498 million net. iShares iBoxx $High Yield Corporate Bond ETF (+$246 million) and SPDR Bloomberg Barclays High Yield Bond ETF (+$242 million) attracted the largest amounts of net new money of all individual fixed income ETFs, while iShares 20+ Year Treasury Bond ETF (-$437 million) handed back the largest individual net redemptions for the week.

Conventional Equity Funds

For the twenty-seventh consecutive week conventional fund (ex-ETF) investors were net redeemers of equity funds, redeeming $6.2 billion. Domestic equity funds, handing back a little less than $5.5 billion, witnessed their thirty-ninth week of net outflows while posting a 0.38% return on average. Meanwhile, their nondomestic equity fund counterparts, posting a minus 1.01% return on average, witnessed net outflows (-$686 million) for the second week in three. On the domestic equity side fund investors shunned large-cap funds (-$4.1 billion net), while on the nondomestic side they were net redeemers of international equity funds (-$486 million).

Conventional Fixed Income Funds

For the second consecutive week taxable bond funds (ex-ETFs) witnessed net inflows, however taking in just $126 million. Fund investors padded the coffers of corporate investment-grade debt funds (+$630 million) and international & global debt funds (+$283 million). Flexible funds (-$397 million) witnessed the largest net redemptions for the week, bettered by balanced funds (-$182 million). Thomson Reuters Lipper’s Inflation-Protected Bond Funds classification witnessed its first week in four of net outflows (-$16 million this past week) after the Fed held rates steady; bank loan funds (-$63 million) witnessed net redemptions for the fifth week in six. For the eleventh consecutive week municipal bond funds (ex-ETFs) witnessed net inflows, taking in some $293 million while posting a negative return on average (-0.24%).

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