August 30, 2018

U.S. Weekly FundFlows Insight Report: Fund Investors Go Risk On During the Week

by Tom Roseen.

For the second week in three investors were net redeemers of fund assets (including those of conventional funds and ETFs), withdrawing $2.0 billion for Lipper’s fund-flows week ended August 29, 2018. However, fund investors continued to pad the coffers of equity funds (+$2.0 billion), fixed income funds (+$2.2 billion), and municipal bond funds (+$212 million) while being net redeemers of money market funds (-$6.4 billion).

Market Wrap-Up

In a low-volume trading week investors pushed select U.S. indices to record highs in response to a new trade deal with Mexico, the rekindled trade discussions with Canada, and optimistic statements by Federal Reserve Board Chair Jerome Powell at the Fed’s annual Jackson Hole, Wyoming, symposium. The S&P 500 Price Only Index and the NASDAQ Composite hit four record closing highs during the flows week, returning 1.82% and 2.80%, respectively, for the week, while the Dow Jones Industrial Average (DJIA) Price Only Index (+1.52%) broke through the 26,000 mark for the first time since February. Overseas, investors cautiously embraced the new trade agreements and the continued strong Q2 2018 earnings reports. The Shanghai Composite Price Only Index (+2.38%) posted the strongest return of the broadly tracked indices, followed closely by the Xetra DAX Total Return Index (+2.25%) and the Nikkei 225 Price Only Index (+1.05%).

At the beginning of the flows week—despite learning that initial jobless claims had come in lower than expected—investors took a wait-and-see approach while digesting the news that former Trump campaign chairman Paul Manafort was found guilty on eight of the charges brought against him and that President Trump’s former lawyer Michael Cohen said he violated campaign-finance laws at Trump’s request. Nonetheless, investors breathed a sigh of relief on Friday, August 24, and pushed the NASDAQ and S&P 500 to new record closes after Fed Chair Powell outlined the rate-hike path at the Kansas City Federal Reserve’s annual monetary policy symposium in Jackson Hole. Powell defined a path of gradually raising interest rates, while he also highlighted the strength of the economy and recent strong corporate earnings results.

On Monday, August 27, the markets continued their ascent as market participants applauded the new trade deal between the U.S. and Mexico. The NASDAQ rose above the 8,000 mark for the first time, marking its second 1,000 point advance for 2018 (an event that has not occurred since 1999), and the DJIA closed at 26,049.64. On Tuesday, the S&P 500 and the NASDAQ hit record highs after the Conference Board said consumer confidence climbed to 133.4 in August, its strongest reading since October 2000. After hearing about an imminent trade deal with Canada, investors once again pushed the broad-based indices to new highs on Wednesday, the last day of the flows week. Despite learning that July pending home sales declined 0.7%, investors cheered the update to the Q2 GDP, which showed that growth had risen at a 4.2% annualized rate, bettering the initial reading of 4.1%.

Exchange-Traded Equity Funds

For the seventh consecutive week equity ETFs witnessed net inflows, taking in a little less than $5.9 billion for the flows week. Authorized participants (APs) were net purchasers of domestic equity ETFs (+$5.1 billion), adding money to the group for the third week in a row. And, for the second consecutive week nondomestic equity ETFs witnessed net inflows, this past week taking in $788 million. SPDR S&P 500 ETF (+$903 million), iShares Core S&P 500 ETF (+$616 million), and Invesco QQQ Trust 1 ETF (+$542 million) attracted the largest amounts of net new money of all individual equity ETFs. At the other end of the spectrum SPDR Gold ETF (-$342 million) experienced the largest individual net redemptions, and SPDR S&P Regional Banking ETF (-$284 million) suffered the second largest net redemptions of the week.

Exchange-Traded Fixed Income Funds

For the second week running taxable fixed income ETFs witnessed net inflows, this past week taking in $1.6 billion. APs were net purchasers of corporate investment-grade debt ETFs (+$676 million), government-Treasury ETFs (+$352 million), and flexible ETFs (+$342 million). iShares IBoxx $HY Corporate Bond ETF (+$381 million) and iShares iBoxx $ Investment-Grade Corporate Bond ETF (+$241 million) attracted the largest amounts of net new money of all individual taxable fixed income ETFs, while SPDR Bloomberg Barclays High Yield Bond ETF (-$360 million) handed back the largest individual net redemptions for the week. For the fourth consecutive week municipal bond ETFs witnessed net inflows, this past week taking in $57 million.

Conventional Equity Funds

For the tenth week running conventional fund (ex-ETF) investors were net redeemers of equity funds, removing $3.9 billion. Domestic equity funds, handing back a little more than $3.1 billion, witnessed their fifteenth weekly net outflows while posting a 1.60% return on average for the flows week. Their nondomestic equity fund counterparts, posting a 1.57% gain on average, witnessed their second consecutive week of net outflows (-$800 million). On the domestic equity side fund investors shunned large-cap funds (-$2.7 million net) and equity income funds (-$254 million), while on the nondomestic equity side investors were net redeemers of international equity funds (-$563 million) and global equity funds (-$238 million).

Conventional Fixed Income Funds

For the fourth week running taxable bond funds (ex-ETFs) witnessed net inflows, attracting $586 million this past week. Fund investors padded the coffers of corporate investment-grade debt funds (+$1.6 billion), international & global funds (+$218 million), and government-Treasury & mortgage funds (+$106 million) but were net redeemers of flexible funds (-$901 million) and government-mortgage funds (-$138 million) for the week. For the fourth week in a row municipal bond funds (ex-ETFs) witnessed net inflows, taking in $155 million while posting a 0.07% loss on average (their first weekly loss in three).

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