by Tom Roseen.
For the first week in three investors were net purchasers of fund assets (including those of conventional funds and ETFs), injecting a net $15.5 billion for Lipper’s fund-flows week ended September 26, 2018. However, fund investors padded the coffers of only money market funds (+$16.6 billion) for the week while being net redeemers of equity funds (-$582 million), municipal bond funds (-$385 million), and taxable fixed income funds (-$177 million).
Investors started the fund-flows week ignoring the escalating trade-war rhetoric between the U.S. and China and focused instead on the strong economic data, pushing the Dow Jones Industrial Average and S&P 500 Index to record closes. However, after more tariffs came into effect, ushering in a new phase, and the FOMC began its two-day policy-setting meeting, investors became less sanguine, weighing on market returns. The Russell 2000 Price Only Index posted the largest weekly decline of the U.S. broad-based indices, losing 0.67%, bettered by the Dow Jones Industrial Average Price Only Index and the S&P 500 Price Only Index, which lost 0.08% and 0.07%, respectively. Bucking the general downtrend, the NASDAQ Composite Price Only Index (+0.88%) posted the only plus-side return for the flows week. Overseas, investors pushed the FTSE 100 Price Only Index (+2.70%) and the Shanghai Composite Price Only Index (+2.46%) to the top of the charts, followed by the Xetra DAX Total Return Index (+2.04%).
At the beginning of the flows week investors cheered the news that first-time jobless claims for the week prior fell 3,000, dropping to their lowest level since November 1969, and that the September Philadelphia Federal Reserve’s manufacturing index leapt to a better-than-expected reading of 22.9 from August’s reading of 11.9. Both the DJIA and the S&P 500 closed the day at record highs. While mega-cap tech- and Internet-related stocks weighed on the NASDAQ on Friday, September 21, the DJIA notched its second straight record close as IHS Markit data showed the September manufacturing sector rose to 55.6 from its August reading of 54.7. Asian stocks did well on the day also, with the Nikkei rising to its highest level since January.
On Monday, September 24, U.S. stocks closed mainly lower as the U.S./China trade war entered the next stage where tariffs on billions of dollars of goods went into effect, and investors began evaluating the Fed’s schedule of its policy meeting, which was to end on Wednesday. Those sectors closely tied to trade, particularly materials and industrials, witnessed the largest declines on the day as Chinese officials accused the U.S. of “trade bullyism.” Oil futures rallied to their highest levels in more than three years as major oil producers refused to increase crude oil output in the face of expected supply disruptions.
Investors took a wait-and-see approach on Tuesday, sitting on their hands before the Fed’s monetary policy decision on Wednesday. Both the DJIA and the S&P 500 closed down for the day, while the NASDAQ witnessed modest gains after the September U.S. consumer confidence number rose to 138.4. As was expected the Fed raised its key lending rate a quarter point to a range of 2.00% to 2.25% and predicted another hike in December and three more in 2019. In addition, the committee removed the phrase that its policy remains “accommodative,” which according to Fed Chair Powell means the economy is performing as expected. Despite reports that new-home sales rose 3.5% for August, stocks gave up early gains after the Fed’s announcement.
Exchange-Traded Equity Funds
For the third consecutive week equity ETFs witnessed net inflows, taking in a little more than $5.9 billion for the flows week. Authorized participants (APs) were net purchasers of domestic equity ETFs (+$6.1 billion), adding money to the group also for the third week running. However, for the fourth week in a row nondomestic equity ETFs witnessed net outflows, this past week handing back $209 million. SPDR S&P 500 ETF (+$3.3 billion), iShares Russell 2000 ETF (+$2.5 billion), and Invesco QQQ Trust 1 (+$1.3 billion) attracted the largest amounts of net new money of all individual equity ETFs. At the other end of the spectrum Industrial Select Sector SPDR ETF (-$778 million) experienced the largest individual net redemptions, and Technology Select Sector SPDR ETF (-$560 million) suffered the second largest net redemptions of the week.
Exchange-Traded Fixed Income Funds
For the first week in three taxable fixed income ETFs witnessed net outflows, this past week handing back $1.2 billion. APs were net purchasers of corporate investment-grade debt ETFs (+$427 million), international & global debt ETFs (+$244 million), and flexible ETFs (+$72 million) while being net redeemers of corporate high-yield ETFs (-$1.6 billion) and government-Treasury ETFs (-$399 million). iShares Broad USD Investment Grade Corporate Bond ETF (+$626 million) and iShares JPM USD Emerging Markets Bond ETF (+$172 million) attracted the largest amounts of net new money of all individual taxable fixed income ETFs, while iShares iBoxx $ High Yield Corporate Bond ETF (-$1.3 billion) handed back the largest individual net redemptions for the week. For the second consecutive week municipal bond ETFs witnessed net outflows, this past week handing back $237 million.
Conventional Equity Funds
For the fourteenth week running conventional fund (ex-ETF) investors were net redeemers of equity funds, removing $6.5 billion. Domestic equity funds, handing back a little more than $4.5 billion, witnessed their nineteenth weekly net outflows while posting a 0.09% loss on average for the flows week. Their nondomestic equity fund counterparts, posting a 1.07% gain on average, witnessed their fifth week in six of net outflows (-$2.0 billion this past week). On the domestic equity side fund investors shunned large-cap funds (-$3.7 billion net) and equity income funds (-$754 million), while on the nondomestic equity side investors were net redeemers of international equity funds (-$1.7 billion) and global equity funds (-$331 million).
Conventional Fixed Income Funds
For the second week running taxable bond funds (ex-ETFs) witnessed net inflows, taking in $994 million this past week. Fund investors padded the coffers of corporate investment-grade debt funds (+$1.4 billion), international & global funds (+$278 million), and government-Treasury & mortgage funds (+$80 million) but were net redeemers of flexible funds (-$509 million) and government-mortgage funds (-$143 million). For the first week in three municipal bond funds (ex-ETFs) witnessed net outflows, handing back $233 million while posting a 0.15% loss on average (their third weekly loss in a row).