by Tom Roseen.
For the second week in three investors were net sellers of fund assets (including those of conventional funds and ETFs), withdrawing $6.0 billion. However, the headline number once again was a little misleading. Fund investors were net redeemers of money market funds, withdrawing $26.0 billion, but they were net purchasers of long-term assets, padding the coffers of equity funds (+$16.2 billion), taxable bond funds (+$3.6 billion), and municipal bond funds (+$236 million) for the week.
In a topsy-turvy flows week marked by the largest one-day market decline for the S&P 500 and the Dow Jones Industrial Average since August 2017, the broad-based indices still managed to post strong returns from the month. For January the S&P 500 (+5.62%) and the Dow (+5.79%) posted their strongest one-month gains since March 2016. Investors continued to cheer better-than-expected Q4 2017 earnings and economic reports at the beginning of the flows week, but punished healthcare stocks after learning that the ten-year Treasury yield had risen to its highest level since 2014 and that Amazon, Berkshire Hathaway, and JPMorgan Chase had announced they would partner in an effort to reduce healthcare costs for their U.S. employees. 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 were down 0.39%, 0.48%, and 0.05%, respectively.
At the beginning of the fund-flows week on Thursday, January 25, the Dow and S&P 500 benchmarks logged fresh new highs on strong Q4 earnings reports. Investors appeared to shrug off news that initial weekly U.S. jobless claims from the prior week rose 17,000 to 233,000 but remained below the 240,000 estimated by analysts. Investors embraced the report that December’s leading economic index reading jumped 0.6%, its third consecutive monthly increase, suggesting that the U.S. economy is likely to grow in 2018. On Friday, January 26, stocks once again ended the day with record closes despite Q4 GDP coming in slightly weaker than expected. Strong earnings reports from the likes of Intel pushed tech issues to new highs. As investors looked toward the upcoming FOMC meeting, Apple’s earnings report, and President Donald Trump’s State of the Union address, a jump in the benchmark ten-year Treasury yield pressured real estate, utility, and telecommunication issues, leading on Monday to stocks’ worst day of the year so far. That was despite investors’ learning that December consumer spending jumped 0.4%, capping the largest increase in household spending since 2011. On Tuesday, January 30, the major indices suffered their largest one-day drop since August 2017 as U.S. bond yields continued to climb and rising borrowing costs began to pressure equity values. Nevertheless, after the FOMC on Wednesday kept interest rates the same but did not signal any change in its plans for another interest rate hike in March, stocks posted modest gains, with the NASDAQ Composite Price Only Index (+7.36% for the month of January) posting its strongest monthly gain since October 2015.
Exchange-Traded Equity Funds
For the fourth week running equity ETFs witnessed net inflows, taking in a little more than $13.9 billion for the flows week. Authorized participants (APs) were net purchasers of domestic equity ETFs (+$10.2 billion), adding money to the group also for a fourth week in a row. For the twenty-first straight week nondomestic equity ETFs also took in net new money, this past week $3.6 billion. SPDR S&P 500 ETF (+$5.0 billion), iShares Core S&P 500 ETF (+$3.0 billion), and iShares Core MSCI Emerging Markets ETF (+$1.4 billion) attracted the largest amounts of net new money of all individual equity ETFs. At the other end of the spectrum iShares MSCI EAFE ETF (-$2.1 billion) experienced the largest individual net redemptions, and iShares Russell 2000 ETF (-$866 million) 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 inflows, this past week taking in some $3.6 billion. APs padded the coffers of corporate investment-grade debt ETFs (+$1.4 billion) and flexible ETFs (+$1.2 billion) while turning their backs on corporate high-yield ETFs, redeeming $0.8 billion net. VelocityShares Daily Inverse VIX Short Term ETN (+$799 million) and iShares Core U.S. Aggregate Bond ETF (+$592 million) attracted the largest amounts of net new money of all individual fixed income ETFs, while SPDR Bloomberg Barclays High Yield Bond ETF (-$569 billion) handed back the largest individual net redemptions for the week after reaching its maturity and shuttering its operations.
Conventional Equity Funds
For the sixth consecutive week conventional fund (ex-ETF) investors were net purchasers of equity funds, injecting $2.3 billion. Domestic equity funds, handing back a little more than $828 million, witnessed their fifth consecutive weekly net outflows while posting a 0.68% loss on average. Meanwhile, their nondomestic equity fund counterparts, posting a 0.82% loss on average, witnessed their sixth consecutive week of net inflows (+$3.1 billion). On the domestic equity side fund investors shunned equity income funds (-$455 million net), while on the nondomestic side investors were net purchasers of international equity funds (+$2.2 billion).
Conventional Fixed Income Funds
For the first week in five taxable bond funds (ex-ETFs) witnessed net outflows, although handing back only $16 million this past week. Fund investors padded the coffers of corporate investment-grade debt funds (+$769 million) and international & global debt funds (+$357 million). Corporate high-yield funds (-$982 million) witnessed the largest net redemptions for the week, bettered substantially by government-mortgage funds (-$205 million). Thomson Reuters Lipper’s Inflation-Protected Bond Funds classification witnessed its ninth straight week of net inflows (+$84 million this past week) as investors digested the rise in U.S. employment costs released during the week and the Fed’s statement that it expects “inflation to move up this year.” Bank loan funds (-$31 million) witnessed their first week of net redemptions in four. For the fourth week in a row municipal bond funds (ex-ETFs) witnessed net inflows, taking in $253 million while posting a loss of 0.24% on average for the fund-flows week.