by Tom Roseen.
For the second week in three investors were net sellers of fund assets (including those of conventional funds and ETFs), withdrawing $14.1 billion. Despite a turnaround in the equity market, fund investors were net redeemers for the week of equity funds (-$4.6 billion), taxable bond funds (-$7.8 billion), municipal bond funds (-$443 million), and money market funds (-$1.3 billion).
All of January 2018‘s equity market gains were wiped out in the first two weeks of February. However, President Donald Trump’s recently released infrastructure plans, continued strong Q4 2017 earnings reports, and bargain hunting helped pushed the major indices up during the fund-flows week ended February 14. For the week the S&P 500 Price Only Index (+0.63%) and the Russell 2000 Price Only Index (+0.94%) posted returns in the black. The S&P 500 and the Dow Jones Industrial Average turned positive for the year to date, returning 0.94% and 0.70%, respectively, despite the January CPI coming in on Wednesday, February 14, higher than analysts had expected.
At the beginning of the fund-flows week on Thursday, February 8, the Dow and S&P 500 benchmarks witnessed another manic day, declining 1,032.89 points (-4.2%) and 100.66 points (-3.8%), respectively, as investors continued to be rocked by fears of inflation, rising interest rates, and the possibility of another government shutdown. The CBOE Volatility Index (VIX) jumped 24% to 34.48, even after investors learned that initial weekly U.S. jobless claims for the prior week declined 9,000 to 221,000, below the 235,000 estimated by analysts. However, on Friday, February 9, stocks capped a week of frenzied losses, with the Dow climbing 330 points even as investors learned that the ten-year Treasury closed the week out at a high of 2.85% and that the bipartisan budget deal boosted spending an additional $300 billion over the next two years, virtually insuring the Treasury Department will have to borrow even more. Bargain hunting on Monday, February 12, pushed the Dow up 410.37 points on the day, even as investors began wringing their hands before the release of the January CPI on Wednesday. European and Asian stocks joined the optimistic mood, pushing stocks up across both regions. Even as the International Energy Agency said the increasing U.S. shale supply will overwhelm oil demand, weighing on prices, the Dow logged its third consecutive up day on Tuesday. And despite the January CPI rising 0.5% (its strongest monthly rise in five months and outpacing analysts’ expected gain of 0.4%), the Dow rose another 253.04 points on Wednesday, even as the ten-year Treasury rose to 2.91% (its highest closing value since January 9, 2014). The VIX closed out the fund-flows week at 19.24, considerably lower than at the beginning of the week as investors perhaps began to understand that rising inflation and higher interest rates might better be seen as signs of a healthy economy.
Exchange-Traded Equity Funds
For the second week running equity ETFs witnessed net outflows, handing back a little more than $5.7 billion for the flows week. Authorized participants (APs) were net redeemers of domestic equity ETFs (-$7.2 billion), redeeming money from the group also for the second week in a row. For the twenty-third straight week nondomestic equity ETFs took in net new money, this past week $1.4 billion. iShares Russell 2000 ETF (+$1.0 billion), iShares Core MSCI EAFE ETF (+$0.8 billion), and iShares Core S&P 500 ETF (+$0.6 billion) attracted the largest amounts of net new money of all individual equity ETFs. At the other end of the spectrum SPDR S&P 500 ETF (-$4.4 billion) experienced the largest individual net redemptions, and PowerShares QQQ Trust 1 ETF (-$2.6 billion) suffered the second largest net redemptions of the week.
Exchange-Traded Fixed Income Funds
For the second week in a row fixed income ETFs witnessed net outflows, this past week handing back some $3.1 billion. APs padded the coffers of government-Treasury ETFs (+$1.3 billion) and government-mortgage ETFs (+$41 million) while turning their backs on corporate high-yield ETFs, redeeming $2.7 billion net. SPDR Bloomberg Barclays 1-3 Month Treasury Bill ETF (+$608 million) and ProShares Short VIX Short-Term Futures ETF (+$416 million) attracted the largest amounts of net new money of all individual fixed income ETFs, while SPDR Bloomberg Barclays High Yield Bond ETF (-$1.7 billion) handed back the largest individual net redemptions for the week.
Conventional Equity Funds
For the seventh week in eight conventional fund (ex-ETF) investors were net purchasers of equity funds, injecting $1.2 billion. Domestic equity funds, handing back a little more than $2.1 billion, witnessed their seventh consecutive weekly net outflows while posting a 0.72% return on average. Meanwhile, their nondomestic equity fund counterparts, posting a 1.16% return on average, witnessed their eighth consecutive week of net inflows (+$3.2 billion). On the domestic equity side fund investors shunned large-cap funds (-$2.0 billion net), while on the nondomestic side investors were net purchasers of international equity funds (+$2.9 billion).
Conventional Fixed Income Funds
For the second week in three taxable bond funds (ex-ETFs) witnessed net outflows, handing back $4.7 billion this past week. Fund investors padded the coffers of government-Treasury funds (+$22 million) and corporate high-quality debt funds (+$22 million). Corporate high-yield funds (-$3.6 billion) witnessed the largest net redemptions for the week, bettered substantially by flexible funds (-$346 million). Thomson Reuters Lipper’s Inflation-Protected Bond Funds classification witnessed its eleventh straight week of net inflows (+$6 million this past week) as investors digested the January CPI figures. Bank loan funds (-$59 million) witnessed their second week of net redemptions in three. For the first week in six municipal bond funds (ex-ETFs) witnessed net outflows, handing back $383 million while posting a loss of 0.27% on average for the fund-flows week.
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