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August 19, 2016

U.S. Fund-Flows Weekly Report: Money Market Funds Drive the Net Outflows

by Pat Keon, CFA.

Lipper’s fund macro-groups (including both mutual funds and exchange-traded funds [ETFs]) suffered net outflows of $15.2 billion for the fund-flows week ended Wednesday, August 17. The negative flows represented the seventh largest weekly net outflows for the year to date. Money market funds saw their coffers shrink $20.8 billion during the week, for their fifth largest net outflows of the year. The rest of the groups all took in net new money, led by taxable bond funds with net inflows of $4.2 billion. Municipal bond funds and equity funds contributed net inflows of $1.1 billion and $307 million, respectively.

The S&P 500 Index posted a gain for the second consecutive week on strength in oil prices and better-than-expected economic data. The S&P 500 appreciated 0.3% (6.73 points) for the week to bring its year-to-date increase to 6.8%. U.S. crude was up 12.6% on the week as oil rallied on news from multiple fronts that major players in the industry were considering taking actions to stabilize the market. The news from the economic front that carried the market was an unexpected rise in import prices and the fact that initial claims for unemployment benefits fell again last month. In other news the minutes from the Federal Reserve’s July meeting were released at the end of the week, indicating that the policymakers are divided on whether an interest rate increase is warranted this year and that they are waiting on additional economic data before a decision is made.

All the positive flows for equity mutual funds came from ETFs. Equity ETFs grew their coffers by $4.3 billion net during the week, with domestic equity ETFs (+$2.6 billion) and nondomestic equity ETFs (+$1.7 billion) both participating in the positive results. The largest net inflows by ETF product belonged to iShares MSCI Emerging Markets (EEM, +$1.2 billion) and PowerShares QQQ (QQQ, +$744 million). The results from the mutual fund side painted a different picture; the group suffered its twenty-third consecutive weekly net outflows as $4.0 billion left its coffers. As has been the trend this year the lion’s share of the net outflows came from domestic equity funds (-$3.9 billion), while the outflows from nondomestic equity funds (-$147 million) were more muted. The largest net outflows belonged to funds in Lipper’s Large-Cap Core Funds classification (-$1.3 billion).

The net inflows for taxable bond funds were fairly evenly split between mutual funds (+$2.2 billion) and ETFs (+$2.0 billion). For mutual funds the largest positive flows belonged to High Yield Funds (+$523 million) and Core Plus Bond Funds (+$513 million). On the ETF side of the ledger iShares iBoxx $IG Corporate (LQD, +$493 million) and iShares JPM USD Emerging Market Bond (EMB, +$340 million) took in the most net new money.

Municipal bond mutual funds pushed their consecutive net inflow streak to 46 weeks with positive flows of $933 million. The most significant contributors to the week’s results were High Yield Muni Debt Funds (+$230 million) and General and Insured Muni Debt Funds (+$222 million).

The net outflows from money market funds (-$20.8 billion) for the week pushed the group’s year-to-date net outflows to $93.4 billion. The largest factors in this past week’s negative results were Institutional Money Market Funds (-$26.4 billion net) and Institutional U.S. Treasury Money Market Funds (-$12.9 billion net).

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