For the third consecutive week investors were net purchasers of fund assets (including those of conventional funds and ETFs), injecting $11.8 billion. Investors padded the coffers of equity funds (+$4.7 billion), taxable bond funds (+$3.7 billion), money market funds (+$3.1 billion), and municipal bond funds (+$262 million). Despite the better-than-expected Q3 earnings reports, another round of record closes for the major indices, and the U.S. Senate’s passing a budget blueprint for the next fiscal year (clearing a hurdle for tax reform) during the flows week, geopolitical concerns and a few late-week earnings reports cast a pall on the markets on the last trading day. For the fund-flows week ended October 25, 2017, the Dow Jones Industrial Average Price Only Index gained 0.74%, while the NASDAQ Composite Price Only Index closed down 0.91%. Despite the continued secession standoff between Catalonia and Spain and the news that China’s economic growth slowed in Q3, a few of the foreign indices stayed in positive territory. On Prime Minister Shinzo Abe’s coalition’s easily winning a majority in Japan’s snap parliamentary election over the weekend, seen as a boon for Japanese stocks, the Nikkei 225 Price Only Index gained 1.00% for the flows week.
At the beginning of the fund-flows week—on the thirtieth anniversary of the 1987 crash, the S&P 500 Index and the Dow notched record closes as investors learned that first-time jobless claims fell in the prior week to their lowest level since March 1973 and that the Philadelphia Fed manufacturing index beat analyst forecasts. On Friday, October 20, after the Senate passed its budget blueprint for the next fiscal year and with existing home sales in September topping analyst expectations, all three main U.S. indices posted simultaneous record closes for the twenty-fourth time in 2017. On the following Monday the markets took a breather at the beginning of a very busy earnings-reporting week, despite Prime Minister Abe’s coalition easily winning a majority in Japan’s snap parliamentary elections on Sunday. On Tuesday the Dow notched its fifty-fourth record close as investors continued to cheer better-than-expected Q3 earnings. Thomson Reuters Proprietary Research team reported that of the 231 S&P 500 constituents that had reported Q3 earnings thus far, 74% beat their earnings estimates while 65% beat their revenue expectations. However, on Wednesday disappointing earnings reports and forward guidance from the likes of Chipotle and AMD weighed on the market, with the S&P 500 and the Dow witnessing their largest one-day losses in more than seven weeks. Nonetheless, September durable goods orders and new home sales both handsomely beat analyst expectations, limiting those declines.
Exchange-Traded Equity Funds
For the fourth week in a row equity ETFs witnessed net inflows, taking in a little more than $5.1 billion for the flows week. Authorized participants (APs) were net purchasers of domestic equity ETFs (+$4.1 billion), adding money to the group for the fourth week in a row. And for the seventh straight week nondomestic equity ETFs took in net new money, this past week $1.0 billion. iShares Russell 2000 ETF (+$807 million), Financial Select Sector SPDR ETF (+$557 million), and PowerShares QQQ Trust 1 (+$308 million) attracted the largest amounts of net new money of all individual equity ETFs. At the other end of the spectrum Consumer Discretionary Select Sector SPDR ETF (-$227 million) experienced the largest individual net redemptions, and Industrial Select Sector SPDR ETF (-$213 million) suffered the second largest net redemptions of the week.
Exchange-Traded Fixed Income Funds
For the sixteenth week running fixed income ETFs attracted net new money, this past week taking in some $2.3 billion. APs padded the coffers of corporate investment-grade debt ETFs (+$1.1 billion) and corporate high-yield ETFs (+$530 million) while turning their backs on flexible ETFs, redeeming $53 million net. iShares iBoxx $Investment Grade Corporate Bond ETF (+$565 million) and iShares 20+ Year Treasury Bond ETF (+$343 million) attracted the largest amounts of net new money of all individual fixed income ETFs, while iShares 3-7 Year Treasury Bond ETF (-$246 million) handed back the largest individual net redemptions for the week.
Conventional Equity Funds
For the thirty-first consecutive week conventional fund (ex-ETF) investors were net redeemers of equity funds, but redeeming just $417 million for the flows week. Domestic equity funds, handing back a little more than $1.9 billion, witnessed their forty-third week of net outflows while posting a 0.30% loss on average. Meanwhile, their nondomestic equity fund counterparts, posting a 0.75% loss on average, witnessed net inflows (+$1.5 billion) for the third week in row. On the domestic equity side fund investors shunned large-cap funds (-$1.2 billion net), while on the nondomestic side they were net purchasers of international equity funds (+$1.3 billion).
Conventional Fixed Income Funds
For the sixth consecutive week taxable bond funds (ex-ETFs) witnessed net inflows, taking in $1.5 billion. Fund investors padded the coffers of corporate investment-grade debt funds (+$2.2 billion) and flexible funds (+$82 million). Corporate high-yield funds (-$407 million) witnessed the largest net redemptions for the week, bettered by government-Treasury funds (-$192 million). Thomson Reuters Lipper’s Inflation-Protected Bond Funds classification witnessed its first week of net outflows in four (-$57 million this past week) as investors waited to see who President Donald Trump nominates as the next head of the Federal Reserve Board; bank loan funds (-$119 million) witnessed net redemptions for the third week in a row even after the ten-year Treasury yield jumped to 2.44%, its highest close since March 21, 2017.
For the second straight week municipal bond funds (ex-ETFs) witnessed net inflows, taking in some $110 million while posting a negative return on average (-0.37%). That weekly fund-flows sum should have been higher. A few monthly reporting Waddell & Reed municipal bond funds merged into equivalent monthly reporting Ivy municipal bond funds this past week. So, while we are reporting the outflows for this past fund-flows week (approximately $764 million), at month-end when Ivy reports its monthly TNA we’ll show the offsetting inflows.
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