November 9, 2017

U.S. Weekly FundFlows Insight Report: Conventional Funds and ETFs Take in a Net $17.5 Billion for the Week

by Tom Roseen

For the fourth week in five investors were net purchasers of fund assets (including those of conventional funds and ETFs), injecting $17.5 billion. Investors padded the coffers of equity funds (+$4.7 billion), taxable bond funds (+$1.6 billion), money market funds (+$10.8 billion), and municipal bond funds (+$463 million). Despite the lower-than-expected October nonfarm-payrolls report, investors continued to send the three major indices to new record highs during the fund-flows week ended November 8, 2017. Pundits cheered the first step toward tax-reform legislation (Tax Cuts and Jobs Act) introduced by House Republicans at the beginning of the flows week, along with the better-than-expected Q3 2017 earnings reports from companies such as Apple. For the flows week the NASDAQ Composite Price Only Index gained 1.08%, while the Russell 2000 Price Only Index closed down 0.74% as small-cap issues came under pressure. Japanese stocks rallied, bolstered by strong corporate earnings and the yen’s weakness, with the Nikkei 225 Price Only Index gaining 2.58% for the flows week.

Market Wrap-Up

At the beginning of the fund-flows week the Dow Jones Industrial Average notched its fifty-fifth record close of 2017 as investors learned that President Donald Trump had nominated Jerome Powell to replace Federal Reserve Chair Janet Yellen in February when her term ends. Meanwhile, the GOP released its new tax reform plan, and first-time U.S. jobless claims fell 5,000 for the prior week, beating analyst expectations. On Friday, November 3, the nonfarm-payrolls report showed jobs increasing by 261,000, below analysts’ expectations of 325,000. Nevertheless, a stronger-than-expected October ISM manufacturing report and Apple’s Q3 earnings report sent all three U.S. major indices to new record closing highs. Shrugging off the purge of key dignitaries in Saudi Arabia and the end of merger talks between Sprint and T-Mobile, all three major stock market indices witnessed record closes on Monday (for the twenty-sixth time this year), while near-month crude oil prices rallied to $57.35/barrel as investors digested the Saudi shake-up and the possible implications for the region. On Tuesday the Dow closed at another record high, but a selloff in financials, consumer discretionary issues, and small-cap issues weighed marginally on the S&P 500 and the NASDAQ as investors began to question the timing and ultimate outcome of the tax legislation working its way through Congress. With no additional news to upset the status quo all three indices once again simultaneously closed at record highs on Wednesday as investors reflected on the one-year anniversary of President Trump’s election win. The Dow was up 28.53%, the S&P 500 21.26%, and the NASDAQ 30.72% since last year’s election.

Exchange-Traded Equity Funds

For the sixth week in a row equity ETFs witnessed net inflows, taking in a little more than $5.0 billion for the flows week. Authorized participants (APs) were net purchasers of domestic equity ETFs (+$3.1 billion), adding money to the group for the sixth week in a row. And for the ninth straight week nondomestic equity ETFs took in net new money, this past week $1.9 billion. iShares MSCI Japan ETF (+$550 million), iShares Core S&P 500 ETF (+$522 million), and iShares MSCI Eurozone ETF (+$382 million) attracted the largest amounts of net new money of all individual equity ETFs. At the other end of the spectrum iShares Russell 2000 ETF (-$670 million) experienced the largest individual net redemptions, and VelocityShares Daily 3x Long Natural Gas ETN (-$313 million) suffered the second largest net redemptions of the week.

Exchange-Traded Fixed Income Funds

For the second week running fixed income ETFs suffered net redemptions, this past week handing back some $234 million. Authorized participants padded the coffers of corporate investment-grade debt ETFs (+$881 million) and government mortgage ETFs (+$87 million) while turning their backs on government/Treasury & mortgage ETFs, redeeming $557 million net. iShares iBoxx $Investment Grade Corporate Bond ETF (+$374 million) and iShares TIPS Bond ETF (+$205 million) attracted the largest amounts of net new money of all individual fixed income ETFs, while iShares 20+ Year Treasury Bond ETF (-$897 million) handed back the largest individual net redemptions for the week.

Conventional Equity Funds

For the thirty-third consecutive week conventional fund (ex-ETF) investors were net redeemers of equity funds, but they redeemed just $336 million for the flows week. Domestic equity funds, handing back a little less than $2.5 billion, witnessed their forty-fifth week of net outflows while posting a 0.35% return on average. Meanwhile, their nondomestic equity fund counterparts, posting a 0.28% return on average, witnessed net inflows (+$2.1 billion) for the fifth week in row. On the domestic equity side fund investors shunned large-cap funds (-$1.3 billion net), while on the nondomestic side they were net purchasers of international equity funds (+$2.0 billion).

Conventional Fixed Income Funds

For the eighth consecutive week taxable bond funds (ex-ETFs) witnessed net inflows, taking in $1.8 billion. Fund investors padded the coffers of balanced funds (+$808 million) and international & global debt funds (+$398 million). Corporate high-yield funds (-$87 million) witnessed the largest net redemptions for the week, bettered by corporate high-quality debt funds (-$75 million). Thomson Reuters Lipper’s Inflation-Protected Bond Funds classification witnessed its first week of net inflows in three (+$7 million this past week) as investors pondered the possible ramifications of Trump’s nomination of Powell as the next head of the Federal Reserve Board. Bank loan funds (-$1.3 billion) witnessed their largest weekly net redemptions since December 16, 2015, almost entirely as a result of the Highland Floating Rate Opportunities Funds II (Class A, C, and Z) merging into a closed-end fund of a similar name, accounting for $1.1 billion of those outflows. For the third week in four municipal bond funds (ex-ETFs) witnessed net inflows, taking in some $427 million while posting a plus-side return on average (+0.52%).

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