February 9, 2018

Equity Funds Suffer Worst Weekly Net Outflows in History

by Patrick Keon

Equity funds saw their coffers shrink $23.9 billion for the fund-flows week ended Wednesday, February 7, 2018. This number represented the largest one-week net outflows since Thomson Reuters Lipper started tracking fund-flows data (1992) and the largest since the global financial crisis (-$22.6 billion for the fund-flows week ended June 25, 2008).

The exodus from equity funds appears to have been triggered by the recent market turmoil. The Dow Jones Industrial Average entered correction territory on Thursday, February 8, closing at 23,860.46, down 10.4% from its all-time high close of 26,616.71 on January 26. The majority of the losses were driven by a stronger-than-anticipated jobs report that showed the economy added 200,000 jobs for January. More importantly, the report indicated wage growth was finally heating up. Average hourly wages grew 0.3% for January, driving the year-over-year increase to 2.9%, a level not reached in more than eight years. The rise in wages stoked the market’s concern about inflation and fear that the Federal Reserve could react aggressively with interest rate hikes to combat it. This, coupled with growing investor sentiment that the market was overbought, led to the Dow’s suffering its largest one-day point loss in history (-1,175.21 points) on Monday, February 5, followed by a 1,032.89-point loss on Thursday, February 8.

The overwhelming majority of the week’s net-negative flows for equity funds came from the ETF side of the ledger (-$20.8 billion). The net outflows for the ETF universe were heavily concentrated, with SPDR S&P 500 ETF (SPY) accounting for $17.2 billion and iShares MSCI EAFE ETF (EFA) and SPDR S&P Dividend (SDY) contributing $3.4 billion and $1.4 billion, respectively, to the total net outflows. The week’s losses reduced equity ETFs’ net inflows for the year to date to $43.2 billion. Positive investor sentiment had been a long-term trend for equity ETFs; they attracted $269.8 billion of net new money for 2017, their largest annual net inflows ever by approximately $115 billion.

Equity mutual funds had net outflows of $3.1 billion this past week, with domestic equity funds (-$5.7 billion) suffering net outflows and nondomestic equity funds (+$2.6 billion) taking in net new money. Money leaving domestic equity mutual funds and nondomestic equity funds experiencing net-positive flows has also been a long-term trend. Domestic equity funds have suffered net outflows in 57 of the last 58 weeks, resulting in annual net outflows of $180.5 billion for 2017 and $15.4 billion for 2018 so far. On the other hand, nondomestic equity funds had positive net flows of $48.5 billion last year and $21.8 billion so far this year.

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