October 6, 2017

Financial Services Funds Enjoy a Strong Fund-Flows Week

by Patrick Keon.

by Patrick Keon.

Funds in Thomson Reuters Lipper’s financial services peer group (including both mutual funds and exchange-traded funds [ETFs]) experienced net-positive flows of over $1.4 billion for the fund-flows week ended Wednesday, October 4. It was the group’s fifth largest weekly net inflows for the year to date and its largest since it took in almost $1.5 billion for the fund-flows week ended July 5, 2017. The week’s results pushed the group’s total net inflows for the year to $2.7 billion. The lion’s share of the net inflows, both for the past week and the year to date, came from the ETFs in the peer group. For the past week financial services ETFs took in $1.3 billion of net new money, while for the year to date they were responsible for $2.6 billion of net inflows.

The recent activity by the Federal Reserve was a factor in the past week’s spike in fund flows for the financial services peer group. While the Fed did not raise interest rates at its mid-September policy meeting, it did announce that it fully expects to raise rates one more time this year and projected three more rate increases in 2018. This was important to the financial sector (banks) because a higher interest rate translates to banks being able to earn more on the money they lend out. The Trump administration’s announcement during the week of its proposed plan to overhaul the tax code also contributed to investors’ putting money into financial services funds. In addition to benefitting from the reduction in the corporate tax rate (a proposed drop to 20% from 35%) banks are also expected to profit from the proposed new repatriation regulations. Under the new regulations U.S. firms would be allowed to bring back overseas profits to the U.S. at a lower tax rate. There is speculation that companies would put some of that surplus to work in activities (share repurchases, mergers & acquisitions) that would require a bank’s participation.

The largest net inflows for individual ETFs for the week belonged Financial Select Sector SPDR (XLF, +$851 million) and SPDR KBW Regional Banking ETF (KRE, +$213 million). For the year-to-date period XLF took in just shy of $1.0 billion of net new money, while KRE actually had net outflows of approximately $200 million.

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