For the sixth week in a row investors were net purchasers of fund assets (including those of conventional funds and ETFs), injecting $13.5 billion. However, the headline number was a little misleading. Investors padded the coffers of money market funds (+$30.7 billion) and municipal bond funds (+$217 million) while being net redeemers of equity funds (-$16.2 billion, their eleventh largest weekly net outflows on record) and taxable bond funds (-$1.2 billion) for the week.
Coming off a four-day losing streak, the broad-based indices strung together five consecutive up days as investors warmed to the increasing probability of tax reform becoming a reality before year-end. Investors cheered a better-than-expected November nonfarm payrolls report and the Federal Reserve Board’s raising its key lending rate as was expected, up 25 basis points (bps) on the last trading day of the fund-flows week ended December 13, 2017. The broad-based indices generally rallied to new highs for the fund-flows week, with the Dow Jones Industrial Average Price Only Index closing the flows week up 1.84%, while the S&P 500 Price Only Index rose 1.28%. Nonetheless, fund investors appeared to be content to sit on the sidelines, taking some of their equity-related winnings off the table ahead of the holiday season. Year to date the Dow and the NASDAQ Composite Price Only Index are up 24.40% and 27.73%, respectively.
The S&P 500 snapped a four-day losing streak on Thursday, December 7, as tech stocks made a surprising comeback after being battered the prior week. Investors’ hopes for a final tax plan before year-end were sparked after the Republican-led Senate agreed to begin negotiations with the House of Representatives. Both the Dow and the S&P 500 hit record highs on Friday after investors learned that the U.S. economy had added some 228,000 jobs for November, outpacing analyst expectations of 200,000, despite learning that December consumer sentiment fell to a three-month low. On Monday the broad-based indices continued to hit new highs as investors looked ahead to the Fed’s two-day monetary policy meeting set to conclude on Wednesday. The FOMC was largely expected to deliver its third interest rate hike this year. The report of November’s Producer Price Index rising 0.4%, its third straight monthly rise, all but guaranteed the Fed would raise rates on Wednesday. At the close of the fund-flows week the Dow rose for a fifth consecutive day, posting a fourth straight day of record closes after the Federal Reserve Board did raise interest rates as expected. The Fed raised the fed-funds rate a quarter of a percentage point to between 1.25% and 1.50% and also telegraphed three more rate hikes for 2018. However, a smaller-than-expected rise in the November core CPI figure helped push the ten-year Treasury yield down 4 bps to 2.36% for the day.
Exchange-Traded Equity Funds
For the eleventh week running equity ETFs witnessed net inflows, taking in a little more than $3.1 billion for the flows week. Authorized participants (APs) were net purchasers of domestic equity ETFs (+$1.2 billion), adding money to the group for the eleventh week in a row. And for the fourteenth straight week nondomestic equity ETFs took in net new money, this past week $1.9 billion. iShares Core S&P 500 ETF (+$939 million), Financial Select Sector SPDR ETF (+$695 million), and iShares MSCI Eurozone ETF (+$651 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 (-$1.8 billion) experienced the largest individual net redemptions, and SPDR Dow Jones Industrial Average ETF (-$529 million) suffered the second largest net redemptions of the week.
Exchange-Traded Fixed Income Funds
For the third week in four fixed income ETFs witnessed net inflows, this past week taking in some $590 million. APs padded the coffers of government/Treasury ETFs (+$1.0 billion) and corporate investment-grade debt ETFs (+$390 million) while turning their backs on corporate high-yield ETFs, redeeming $715 million net. iShares Short Treasury Bond ETF (+$607 million) and iShares 20+ Years Treasury Bond ETF (+$255 million) attracted the largest amounts of net new money of all individual fixed income ETFs, while iShares iBoxx $High Yield Corporate Bond ETF (-$584 million) handed back the largest individual net redemptions for the week.
Conventional Equity Funds
For the thirty-eighth consecutive week conventional fund (ex-ETF) investors were net redeemers of equity funds, redeeming $19.3 billion (for the fund group’s fourth largest weekly net outflows on record). Domestic equity funds, handing back a little more than $18.5 billion (their largest weekly outflows on record), witnessed their fiftieth week of net outflows while posting a 1.20% return on average. Meanwhile, their nondomestic equity fund counterparts, posting a 1.31% return on average, witnessed net outflows (-$779 million) for the third week in a row. On the domestic equity side fund investors shunned large-cap funds (-$11.4 billion net, their fourth largest net outflows on record), while on the nondomestic side investors were net redeemers of global equity funds (-$512 million).
Conventional Fixed Income Funds
For the first week in four taxable bond funds (ex-ETFs) witnessed net outflows, handing back $1.8 billion this past week. Fund investors padded the coffers of corporate investment-grade debt funds (+$365 million) and government/Treasury funds (+$173 million). Flexible funds (-$1.6 billion) witnessed the largest net redemptions for the week, bettered substantially by balanced funds (-$407 million). Thomson Reuters Lipper’s Inflation-Protected Bond Funds classification witnessed its second week of net inflows (+$44 million this past week) as investors digested some of the inflation figures released during the week. Bank loan funds (-$220 million) witnessed their tenth consecutive week of net outflows. For the fifth week in six municipal bond funds (ex-ETFs) witnessed net inflows, taking in some $70 million while posting a loss of 0.48% on average for the fund-flows week.
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