U.S. Fund-Flows Weekly Report: Equity Funds and Taxable Bond Funds Drive Weekly Net Inflows

Refinitiv Lipper’s fund macro-groups (including both mutual funds and ETFs) grew their coffers by $21.4 billion for the fund-flows week ended Wednesday, January 10. The lion’s share of the net inflows went into equity funds (+$12.0 billion) and taxable bond funds (+$10.4 billion), while municipal bond funds received $1.1 billion. Money market funds were the only macro-group giving back net money for the week; they suffered net outflows of $2.2 billion.

Market Overview

The Dow Jones Industrial Average and the S&P 500 Index started 2018 where they left off last year. After recording impressive gains of 25.1% and 19.4% for 2017, the Dow and the S&P were up 1.79% and 1.30% for the most recent fund-flows trading week, with the Dow closing above 25,000 for the first time. The week’s strong performance was driven by a rise in oil prices, continued solid economic data, and dissent among the Federal Reserve members about whether three rate hikes are needed next year. The energy sector benefitted as oil prices climbed to their highest levels since December 2014 on production cuts by OPEC and declines in U.S. crude inventories. The FOMC minutes from December indicated the Fed was divided about the three forecasted increases for 2018. One camp believed that three more rate increases were too aggressive and might prevent inflation from reaching and sustaining the Fed’s target rate. The other side theorized that three rate hikes would not be enough, since the Fed’s rate-hike program had not yet caused financial conditions to deteriorate and that leaving interest rates at an artificially low level would increase the risk of financial instability.

ETFs

ETFs took in $14.9 billion of net new money for the week on the strength of equity ETFs (+$10.6 billion) and taxable bond ETFs (+$4.3 billion). The largest net inflows for individual equity ETFs belonged to iShares Core S&P 500 ETF (IVV, +$2.6 billion) and PowerShares QQQ Trust (QQQ, +$1.8 billion), while for taxable bond ETFs the largest positive net flows belonged to iShares JP Morgan USD Emerging Market ETF (EMB, +$981 million) and iShares Core U.S. Aggregate Bond ETF (AGG, +$682 million). Municipal bond ETFs took in $23 million of net new money for the week.

Equity Mutual Funds

Equity mutual funds grew their coffers by $1.4 billion for the week. Continuing the trend we saw for most of 2017, nondomestic equity funds experienced net inflows (+$4.9 billion) this past week, while domestic equity funds (-$3.5 billion) suffered net outflows. The largest net outflows among domestic equity funds belonged to Lipper’s Large-Cap Core Funds (-$1.4 billion) classification, while the largest net inflows for nondomestic equity funds were attributable to Emerging Markets Funds (+$1.3 billion).

Fixed Income Mutual Funds

Taxable bond mutual funds and municipal bond funds had net-positive flows of $6.2 billion and $1.0 billion, respectively. The groups appeared to derive strength from the Fed’s disagreement about the three projected interest rate hikes for this year as well as the new Tax Cuts and Jobs Act’s not impacting muni bonds as much as initially feared. The largest weekly net inflows belonged to High Yield Funds (+$1.5 billion), Core Bond Funds (+$1.5 billion), and General Muni Debt Funds (+$709 million).

Money Market Mutual Funds

Money market mutual funds had net-negative flows of $2.2 billion for the week. The Money Market Funds (-$3.3 billion) and U.S. Government Money Market Funds (-$2.9 billion) classifications suffered the largest net outflows, while Institutional Money Market Funds (+$4.8 billion) had the largest net inflows.