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March 29, 2018

U.S. Weekly FundFlows Insight Report: Politics, Trade Wars, and Facebook, Oh My: Equity Funds Hand Back $14.4 Billion for the Week

by Tom Roseen.

For the third week in a row investors were net redeemers of fund assets (including those of conventional funds and ETFs), withdrawing $11.9 billion. While fund investors were net redeemers of equity funds (-$14.4 billion), they padded the coffers of money market funds (+$2.4 billion), taxable bond funds (+$121 million), and municipal bond funds (+$37 million) for the fund-flows week ended March 28, 2018.

Market Wrap-Up

Despite relatively strong economic reports released during the flows week, concerns over a trade war with China and privacy issues pressured the markets on four of the five trading days as investors began to understand the importance of the Cambridge Analytica-Facebook debacle. For the fund-flows week the NASDAQ Composite Price Only Index (-5.39%) witnessed the largest decline of the broad-based indices as tech stocks (particularly the FAANG stocks) took a beating. The Dow Jones Industrial Average Price Only Index (-3.38%) and the S&P 500 Price Only Index (-3.94%) did a slightly better job mitigating losses. Only the FTSE 100 Price Only Index (+0.34%) managed to stay in the black for the week. The ten-year Treasury yield declined 12 basis points—from 2.89% to 2.77%—for the flows weeks as some investors turned toward safe-haven plays.

The wreck in tech dominated most of the headlines this past week as some of 2017’s highest flyers took it on the chin, led by a 20%-plus decline for Facebook since its record high set earlier this year. News that U.S. jobless claims rose 3,000 to 229,000 the week prior was offset by the Conference Board’s report that showed its leading economic index rose for a fifth consecutive month in February. Investors focused on news that President Donald Trump had announced a $50-billion tariff on Chinese goods and the retaliatory response by China, ignoring Trump’s signing a $1.3-trillion spending bill that averted a government shutdown and a report showing February durable goods orders rose 3.1%. The U.S.-China trade war concerns lessened slightly after news that Beijing and Washington officials were discussing the issues behind the scenes, but that only stopped the meltdown on Monday, March 26. On Tuesday and Wednesday market declines continued, despite the final Q4 2017 GDP reading coming in at 2.9%, beating analyst expectations, and on news that pending home sales rose 3.1% for February.

Exchange-Traded Equity Funds                                                                      

For the second consecutive week equity ETFs witnessed net outflows, handing back a little less than $13.4 billion for the flows week. Authorized participants (APs) were net redeemers of domestic equity ETFs (-$11.5 billion), removing money from the group also for a second week in a row. For the first week in 29 nondomestic equity ETFs suffered net redemptions, this past week handing back $1.9 billion. Barclays ETN+ FI Enhanced Global High Yield ETN Series B (+$1.5 billion), Industrial Select Sector SPDR ETF (+$619 million), and SPDR Dow Jones Industrial Average ETF (+$572 million) attracted the largest amounts of net new money of all individual equity ETFs. At the other end of the spectrum SPDR S&P 500 ETF (-$5.4 billion) experienced the largest individual net redemptions, and iShares Core S&P 500 ETF (-$5.2 billion) suffered the second largest net redemptions of the week.

Exchange-Traded Fixed Income Funds

For the second week in three fixed income ETFs witnessed net inflows, this past week attracting some $1.2 billion. APs padded the coffers of government-Treasury ETFs (+$917 million) and corporate investment-grade debt ETFs (+$136 million). iShares Short Treasury Bond ETF (+$849 million) and iShares Floating Rate Bond ETF (+$188 million) attracted the largest amounts of net new money of all individual fixed income ETFs, while iShares iBoxx $ Investment Grade Corporate Bond ETF (-$512 million) handed back the largest individual net redemptions for the week.

Conventional Equity Funds

For the second week in three conventional fund (ex-ETF) investors were net sellers of equity funds, redeeming $993 million. Domestic equity funds, handing back a little more than $2.5 billion, witnessed their fifth consecutive weekly net outflows while posting a 3.82% loss on average for the flows week. Meanwhile, their nondomestic equity fund counterparts, posting a 2.50% loss on average, witnessed their second consecutive week of net inflows (+$1.6 billion). On the domestic equity side fund investors shunned large-cap funds (-$1.0 billion net), while on the nondomestic equity side investors were net purchasers of international equity funds (+$1.2 billion) and global equity funds (+$372 million).

Conventional Fixed Income Funds

For the first week in four taxable bond funds (ex-ETFs) witnessed net outflows, handing back $1.1 billion this past week. Fund investors padded the coffers of corporate investment-grade debt funds (+$302 million) and international & global debt funds (+$133 million) but were net redeemers of corporate high-yield funds (-$527 million) and government mortgage funds (-$463 million) for the week. Lipper’s Inflation-Protected Bond Funds classification witnessed its second straight week of net redemptions, handing back $16 million this past week. Bank loan funds (+$307 million) witnessed their fourth consecutive week of net inflows. Also for the fourth week in a row municipal bond funds (ex-ETFs) witnessed net inflows, although taking in only $211,000 while posting a gain of 0.27% on average for the fund-flows week.

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