For the second week in three investors were net sellers of fund assets (including those of conventional funds and ETFs), withdrawing $9.6 billion. However, the headline numbers were a little misleading. Fund investors were net redeemers of money market funds, withdrawing $22.3 billion but were net purchasers of long-term assets, padding the coffers of equity funds (+$9.1 billion), taxable bond funds (+$2.5 billion), and municipal bond funds (+$1.2 billion) for the week.
During the Martin Luther King Jr. holiday-shortened trading week and the unofficial kickoff of the Q4 2017 earnings season, equity investors remained engaged for the fund-flows week ended January 17, 2018, despite hearing that the Chinese government might lighten up on U.S. bond purchases (which sent Treasury yields higher). Shrugging off concerns of a worse-than-expected weekly jobless claims and a possible upcoming partial government shutdown, belief that the Q4 earnings season should be fairly bright and perhaps on fears of missing out on the market rally helped push the major indices to fresh new highs. For the fund-flows week the Dow Jones Industrial Average Price Only Index, the S&P 500 Price Only Index, and the NASDAQ Composite Price Only Index closed up 2.94%, 1.98%, and 2.02%, respectively.
On Thursday, January 11, the Russell 2000 joined the other U.S. benchmarks in trading at fresh new highs. In anticipation of a hoped-for good earnings season investors sent stocks to new records after near-month crude oil prices rose to three-year highs, and they shrugged off news that initial weekly U.S. jobless claims from the prior week rose 11,000 to 261,000, well above the 248,000 estimated by analysts. On Friday, January 12, stocks once again ended the day with record closes as the unofficial start to the Q4 earnings season began. While December retail sales came in a little softer than expected, rising 0.4%, a declining U.S. dollar (considered to be a tailwind for U.S. multinational sales) and another rise in oil prices kept investors in the game. After the MLK three-day holiday weekend the Dow witnessed its largest one-day decline in nearly two years as investors digested the news that Donald Trump’s former chief strategist, Steve Bannon, was subpoenaed to testify in the Russian election-meddling probe and that the Empire State manufacturing survey slipped to 17.7 in January from December’s 19.6 reading. Nonetheless, the broad-based indices rocketed to new highs on the last trading day of the fund-flows week, sending the Dow to finish above the 26,000 mark for the first time as the Federal Reserve’s Beige Book indicated the 2018 outlook remains optimistic for the country and the Fed reported that December industrial output rose 0.9% (up for the fourth consecutive month).
Exchange-Traded Equity Funds
For the second week running equity ETFs witnessed net inflows, taking in a little more than $8.2 billion for the flows week. Authorized participants (APs) were net purchasers of domestic equity ETFs (+$4.9 billion), adding money to the group also for a second week in a row. For the nineteenth straight week nondomestic equity ETFs also took in net new money, this past week $3.4 billion. SPDR S&P 500 ETF (+$4.8 billion), iShares Core MSCI EAFE ETF (+$919 million), and iShares Core MSCI Emerging Markets ETF (+$789 million) attracted the largest amounts of net new money of all individual equity ETFs. At the other end of the spectrum iShares Russell 1000 Value Index ETF (-$1.9 billion) experienced the largest individual net redemptions, and WisdomTree Japan Hedged Equity ETF (-$645 million) suffered the second largest net redemptions of the week.
Exchange-Traded Fixed Income Funds
For the first week in four fixed income ETFs suffered net outflows, this past week handing back some $826 million. APs padded the coffers of flexible ETFs (+$801 million) and international & global debt ETFs (+$482 million) while turning their backs on corporate high-yield ETFs and government-Treasury ETFs, redeeming $2.0 billion and $256 million net, respectively. ProShares Short VIX Short-Term Futures ETF (+$400 million) and iShares JPMorgan USD Emerging Markets Bond ETF (+$371 million) attracted the largest amounts of net new money of all individual fixed income ETFs, while SPDR Bloomberg Barclays High Yield Bond ETF (-$1.3 billion) handed back the largest individual net redemptions for the week after reaching its maturity and shuttering its operations.
Conventional Equity Funds
For the fourth consecutive week conventional fund (ex-ETF) investors were net purchasers of equity funds, injecting $845 million. Domestic equity funds, handing back a little more than $2.6 billion, witnessed their third weekly net outflows while posting a 1.88% return on average. Meanwhile, their nondomestic equity fund counterparts, posting a 1.92% return on average, witnessed their fourth consecutive week of net inflows (+$3.5 billion). On the domestic equity side fund investors shunned large-cap funds (-$1.4 billion net), while on the nondomestic side investors were net purchasers of international equity funds (+$3.8 billion).
Conventional Fixed Income Funds
For the third consecutive week taxable bond funds (ex-ETFs) witnessed net inflows, taking in $3.3 billion this past week. Fund investors padded the coffers of corporate investment-grade debt funds (+$3.8 billion) and international & global debt funds (+$210 million). Corporate high-yield funds (-$1.1 billion) witnessed the largest net redemptions for the week, bettered substantially by government-Treasury & mortgage funds (-$36 million). Thomson Reuters Lipper’s Inflation-Protected Bond Funds classification witnessed its seventh straight week of net inflows (+$39 million this past week) as investors digested the inflation figures and the Fed’s Beige Book observations during the week. Bank loan funds (+$65 million) witnessed their second consecutive week of net inflows. For the second week in a row municipal bond funds (ex-ETFs) witnessed net inflows, taking in some $1.1 billion while posting a gain of 0.07% on average for the fund-flows week.
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