April 6, 2018

U.S. Fund-Flows Weekly Report: Investors Continue to Flee Equity Funds

by Patrick Keon.

Thomson Reuters Lipper’s fund asset groups (including both mutual funds and ETFs) suffered net outflows of $6.4 billion for the fund-flows week ended Wednesday, April 4. Equity funds (-$11.6 billion) were responsible for the overwhelming majority of the week’s net outflows. It was the group’s third straight week of negative net flows during which time its coffers shrank $35.6 billion. Taxable bond funds (+$3.5 billion) and money market funds (+$1.9 billion) both took in net new money for the week, while municipal debt funds (-$247 million) experienced net outflows.

Market Overview

If you like stock market volatility, this was the week for you. In a shortened week of trading because of the Good Friday holiday, both the Dow Jones Industrial Average and the S&P 500 Index were either up or down 1% every day (three days up and one day down). Overall, the Dow and the S&P 500 gained 1.74% and 1.52%, respectively, for the week. As an example of the volatility the markets experienced, during the last trading day of the fund-flows week the Dow reversed a 500-point intraday loss to finish up over 200 points. Contributors to this volatility were the uncertainty surrounding the technology sector and the continued saber rattling between the U.S. and China over the tariffs/trade war. Tech stocks slumped as multiple problem areas for the sector continued to be front-page news: (1) the continued blowback from the Facebook data breach, (2) Tesla facing scrutiny over a fatal accident involving one of its cars utilizing the autopilot function, and (3) President Trump’s ongoing Twitter battle with Amazon. The U.S. and China traded threats about tariffs back and forth during the week. A potential wildcard in this looming trade war would be the Federal Reserve’s reaction to it. Federal Reserve Bank of Philadelphia President Patrick Harker suggested that it could potentially cause the Fed to steepen its interest rate increases if the situation escalates.

ETFs

ETFs suffered net outflows (-$7.6 billion) for the third straight week. The net outflows were concentrated in the equity asset class (-$11.4 billion), with two ETFs accounting for almost $9 billion of negative flows: SPDR S&P 500 ETF (SPY, -$7.7 billion) and iShares Russell 2000 (IWM, -$1.2 billion). Taxable bond ETFs (+$3.8 billion) and muni debt ETFs (+$25 million) both had net inflows for the week. The largest positive flows for taxable bond ETFs belonged to three iShares Treasury products: iShares Short Treasury Bond ETF (SHV, +$1.3 billion), iShares 20+ Year Treasury Bond ETF (TLT, +$735 million), and iShares 1-3 Year Treasury Bond ETF (SHY, +$438 million).

Equity Mutual Funds

Equity mutual funds had net-negative flows of $192 million for the week. Nondomestic equity funds (+$234 million) took in net new money, while domestic equity funds saw net money leave (-$426 million). The largest net inflows among nondomestic equity funds belonged to Lipper’s International Multi-Cap Value Funds peer group (+$172 million), and the largest net-negative flows for domestic equity funds were attributable to Real Estate Funds (-$179 million).

Fixed Income Mutual Funds

Taxable bond mutual funds (-$276 million) and municipal bond mutual funds (-$273 million) both had negative net flows for the week. The largest net outflows for taxable bond funds were attributable to High Yield Funds (-$768 million) and Inflation-Protected Bond Funds (-$226 million), while the majority of net outflows for the muni debt funds group came from the Short Muni Debt Funds (-$163 million) and Short Intermediate Muni Debt Funds (-$124 million) peer groups.

Money Market Mutual Funds

Money market mutual funds had net inflows of $1.9 billion for the week. U.S. Government Money Market Funds (+$4.5 billion) and Institutional Money Market Funds (+$2.8 billion) took in the most net new money, while Institutional U.S. Treasury Money Market Funds saw $4.3 billion net leave.

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