by Tom Roseen.
For the second week in three investors were net purchasers of fund assets (including those of conventional funds and ETFs), injecting $5.6 billion for Lipper’s fund-flows week ended October 24, 2018. Fund investors were net purchasers of equity funds (+$4.2 billion) and money market funds (+$6.4 billion) while being net redeemer of taxable fixed income funds (-$4.5 billion) and municipal bond funds (-$495 million).
The triple hangover of trade uncertainties, Federal Reserve rate hikes on the horizon, and slowing global growth weighed on investor psyche during the fund-flows week. Despite a strong beginning to the Q3 earnings season and continued good news on the U.S. economic front, considerations about Italy’s budget crisis, Saudi Arabia’s complicity in a dissident journalist’s death, ongoing U.S./China trade disputes, and the upcoming midterm elections caused investors to flee equities. The Russell 2000 Price Only Index (-7.60%) suffered the largest decline for the flows week, bettered by the NASDAQ Composite Price Only Index (-6.99%) and the S&P 500 Price Only Index (-5.45%). Brexit negotiations, concerns over Rome’s budget plans, and concerns of contagion from slowing global growth weighed on most of the global markets. The Shanghai Composite Price Only Index posted the only plus-side return for the week, rising 1.41% (but it’s down 26.14% year to date). The Xetra DAX Total Return Index suffered the largest decline of the broadly followed global indices, declining 5.58% for the flows week.
At the beginning of the flows week the Dow Jones Industrial Average tumbled 327 points as a large decline in the Chinese stock markets pushed values to a four-year low and as investors digested the minutes from the Fed’s September FOMC meeting, which undercut investor confidence. Global concerns trumped news that jobless claims for the prior week declined as expected, down 5,000, and that the Philadelphia Fed’s manufacturing index, although lower than expected, indicated healthy activity in the factory sector. On Friday the markets turned sideways with solid corporate earnings offsetting weak housing data. According to the National Association of Realtors August existing home sales fell 3.4%. A decline in China GDP growth to 6.5% caused some to fret over contagion fears for other emerging-market economies and for the developed markets as well.
On Monday, October 22, the S&P 500 witnessed its fourth consecutive day of declines as investors kept a keen eye on company earnings. However, Chinese stocks rallied after country leaders and regulators made reassuring comments and China’s President Xi Jinping emphasized his support for the private sector over the weekend. On Tuesday, the S&P 500 closed down for the fifth day in a row after another large selloff in the Chinese market rekindled concerns about the global economy. On Wednesday, the Dow fell 606 points on the day. The NASDAQ declined 328 points, its largest one-day decline since August 18, 2011, pushing it into correction territory from its August 29, 2018, high as earnings growth showed possible signs of weakening because of the tariff spats between the U.S. and China. Investors’ flight to safety pushed the ten-year Treasury yield down 7 basis points to 3.10%, its lowest level since October 2.
Exchange-Traded Equity Funds
For the sixth week in seven equity ETFs witnessed net inflows, taking in a little more than $8.0 billion for the flows week. Authorized participants (APs) were net purchasers of domestic equity ETFs (+$6.9 billion), adding money to the group for the first week in three. And, for the fourth week in a row nondomestic equity ETFs witnessed net inflows, this past week attracting $1.1 billion. SPDR S&P 500 ETF (+$3.1 billion) and iShares Russell 2000 ETF (+$1.2 billion) attracted the largest amounts of net new money of all individual equity ETFs. At the other end of the spectrum Consumer Discretionary Select Sector SPDR ETF (-$529 million) experienced the largest individual net redemptions, and iShares U.S. Real Estate ETF (-$261 million) suffered the second largest net redemptions of the week.
Exchange-Traded Fixed Income Funds
For the second week in three taxable fixed income ETFs witnessed net outflows, this past week handing back $2.0 billion. APs were net purchasers of corporate investment-grade debt ETFs (+$209 million) and international & global debt ETFs (+$13 million) while being net redeemers of corporate high-yield ETFs (-$1.9 billion) and flexible ETFs (-$312 million). JPMorgan Ultra-Short Income ETF (+$507 million) and iShares 1-3 Year Treasury Bond ETF (+$249 million) attracted the largest amounts of net new money of all individual taxable fixed income ETFs. Meanwhile iShares iBoxx $ High Yield Corporate Bond ETF (-$947 million) and iShares iBoxx $ Investment-Grade Corporate Bond ETF (-$520 million) handed back the largest individual net redemptions for the week. For the second week in three municipal bond ETFs witnessed net outflows, this past week handing back $25 million.
Conventional Equity Funds
For the eighteenth week running conventional fund (ex-ETF) investors were net redeemers of equity funds, removing $3.8 billion. Domestic equity funds, handing back a little less than $1.7 billion, witnessed their twenty-third weekly net outflows and posted a 5.95% loss on average for the flows week. Their nondomestic equity fund counterparts, posting a 5.06% loss on average, witnessed their fifth consecutive weekly net outflows (-$2.1 billion this past week). On the domestic equity side fund investors shunned large-cap funds (-$1.7 billion net) and equity income funds (-$262 million), while on the nondomestic equity side investors were net redeemers of international equity funds (-$1.7 billion) and global equity funds (-$386 million).
Conventional Fixed Income Funds
For the fourth week running taxable bond funds (ex-ETFs) witnessed net outflows, handing back $2.5 billion this past week. Fund investors injected net new money into international & global debt funds (+$272 million) and corporate investment-grade debt funds (+$206 million) but were net redeemers of flexible funds (-$1.8 billion) and corporate high-yield funds (-$513 million). For the fifth consecutive week municipal bond funds (ex-ETFs) witnessed net outflows, handing back $470 million while posting a 0.11% gain on average (their second weekly gain in a row).