February 9, 2018

U.S. Fund-Flows Weekly Report: Funds Experience Overall Net Inflows for the Volatile Week

by Patrick Keon.

Thomson Reuters Lipper’s fund asset groups (including both mutual funds and ETFs) took in net-positive flows of $10.7 billion for the fund-flows week ended Wednesday, February 7. In what appeared to be a flight to safety, net inflows into money market funds (+$30.8 billion), taxable bond funds (+$3.1 billion), and municipal bond funds (+$675 million) offset the net outflows from equity funds (-$23.9 billion).

Market Overview

In a volatile week of trading the Dow Jones Industrial Average and the S&P 500 Index both gave up the lion’s share of their respective year-to-date increases. The S&P 500 lost 5.03% and the Dow retreated 4.80% to reduce their gains for 2018 to 0.30% and 0.70%, respectively. The market’s downturn was triggered by a stronger-than-anticipated jobs report that showed the economy added 200,000 jobs for January, but 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.

ETFs

ETFs suffered net outflows of $21.6 billion for the week, the lion’s share of which was attributable to equity ETFs (-$20.8 billion). SPDR S&P 500 ETF (SPY, -$17.2 billion) had the largest net outflows for individual equity ETFs, followed by iShares MSCI EAFE ETF (EFA, -$3.4 billion) and SPDR S&P Dividend (SDY, -$1.4 billion). Taxable bond ETFs (-$895 million) also saw net money leave for the week, with the largest net-negative flows belonging to SPDR Bloomberg Barclays High Yield Bond ETF (JNK, -$1.2 billion), iShares JP Morgan USD Emerging Market ETF (EMB, -$994 million), and iShares iBoxx Investment Grade Corporate Bond ETF (LQD, -$900 million). Municipal bond ETFs had net-positive flows of $54 million for the week.

Equity Mutual Funds

Equity mutual funds suffered net outflows of $3.1 billion for the week. Following the long-term trend, nondomestic equity funds took in net new money (+$2.6 billion) while domestic equity funds (-$5.7 billion) saw money leave. The largest net outflows among domestic equity funds belonged to Lipper’s Large-Cap Growth Funds classification (-$1.1 billion), while the largest net inflows for nondomestic equity funds were attributable to Global Equity Income Funds (+$679 million).

Fixed Income Mutual Funds

Taxable bond funds (+$4.0 billion) and municipal bond funds (+$621 million) both had net inflows for the week. On the taxable bond funds side of the ledger Core Bond Funds (+$2.2 billion) and Core Plus Bond Funds (+$1.5 billion) continued to attract net new money, while the flight to safety hurt High Yield Funds (-$1.4 billion). For muni funds General Muni Debt Funds (+$631 million) and Intermediate Muni Debt Funds (+$338 million) paced the net inflows, while investors left High Yield Muni Debt Funds (-$551 million).

Money Market Mutual Funds

Money market mutual funds attracted $30.8 billion of net new money as investors sought safe havens to sit out the volatile week in the market. The Institutional U.S. Government Money Market Funds (+$18.8 billion) and U.S. Government Money Market Funds (+$7.3 billion) categories had the largest net inflows for the fund macro-group.

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