For the seventh week in a row investors were net purchasers of fund assets (including those of conventional funds and ETFs) in general, adding a little more than $29.6 billion for Lipper’s fund-flows week ended June 6, 2018. However, the headline number was misleading. Despite upbeat economic reports and a market rally during the flows week, fund investors were net redeemers of equity funds (-$4.3 billion) and taxable bond funds (-$1.2 billion). Perhaps as a result of continuing trade war and geopolitical concerns, money market funds (+$34.9 billion) were the primary recipients of investor assets, followed at a distance by municipal bond funds (+$189 million).
Market Wrap-Up
During the flows week investors generally shrugged off trade war concerns and cheered a better-than-expected nonfarm jobs report, a possible resolution to Italy’s political woes, and a rally in tech and financial issues. For the fund-flows week the Russell 2000 Price Only Index and the NASDAQ Composite Price Only Index posted record closes, rising 1.70% and 3.04%, respectively, while the Dow Jones Industrial Average Price Only Index (+1.94%) and the S&P 500 Price Only Index (+1.94%) both witnessed multi-day plus-side performance. Overseas, the Shanghai Composite Price Only Index (+2.89%) posted the strongest return of the broadly followed indices, trailed by the Xetra DAX Total Return Index (+1.82%).
At the beginning of the flows week markets sagged after the U.S. decided to impose tariffs on steel and aluminum imports from Europe, Canada, and Mexico, sparking promises of retaliation from our closest trading partners. In Italy the antiestablishment League and 5 Star Movement struck a deal to form a coalition government—easing some geopolitical uncertainties, but it wasn’t enough to offset investors’ continued flight to safety, pushing the ten-year Treasury yield down to 2.83%. On Friday, June 1, the Dow got a shot in the arm after reports showed the U.S. economy had added 233,000 new jobs in May, outpacing analyst expectations of 200,000. The unemployment rate declined to 3.8%, an 18-year low. The Institute of Supply Management reported that its May manufacturing index rose 1.4 percentage points to 58.7%.
Despite a breakdown in trade negotiations between China and the U.S. and a rare rebuke issued to the U.S. by the remaining G-7 finance ministers over the weekend, a rally in the tech and consumer discretionary sectors pushed U.S. stocks to solid gains on Monday, June 4, with the Russell 2000 hitting an all-time high and the NASDAQ closing at a record high for the first time since March 12. Near-month crude oil prices settled 1.6% lower on the day, declining for the third consecutive day. A rise in technology and small-cap issues pushed the NASDAQ and Russell 2000 to another day of record closes on Tuesday; however, the Dow ended down slightly for the day as a retreat in government bond yields weighed on financial issues. Helping reverse that trend, bank stocks rallied after the ten-year Treasury rose to 2.97% on remarks by senior officials of the European Central Bank, indicating they were on track to reduce bond purchases as early as the following week. Both the NASDAQ Composite and the Russell 2000 indices ended the day at record closing highs, and the Dow posted its best one-day return since April 10.
Exchange-Traded Equity Funds
For the first week in nine equity ETFs witnessed net outflows, handing back a little less than $2.6 billion for the flows week. Authorized participants (APs) were net redeemers of domestic equity ETFs (-$1.3 billion), removing money from the group for the first week in six. For the third consecutive week nondomestic equity ETFs also witnessed net redemptions, this past week handing back $1.3 billion. iShares Russell 2000 ETF (+$1.2 billion), iShares Core S&P Small-Cap ETF (+$571 million), and Technology Select Sector SPDR ETF (+$329 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 (-$1.0 billion) experienced the largest individual net redemptions, and iShares Edge MSCI Minimum Volatility USA ETF (-$939 million) suffered the second largest net redemptions of the week.
Exchange-Traded Fixed Income Funds
For the second week running taxable fixed income ETFs witnessed net outflows, this past week handing back $1.1 billion. APs were net purchasers of corporate government-Treasury ETFs (+$1.0 billion) and government-mortgage ETFs (+$66 million) but were net redeemers of corporate high-yield ETFs (-$1.6 billion) and international & global debt ETFs (-$562 million). Schwab US TIPS Bond ETF (+$1.1 billion) and Schwab Intermediate-Term US Treasury ETF (+$811 million) attracted the largest amounts of net new money of all individual taxable fixed income ETFs, while iShares 1-3 Year Treasury Bond ETF (-$1.1 billion) handed back the largest individual net redemptions for the week. For the third consecutive week municipal bond ETFs witnessed net inflows, this past week taking in $115 million.
Conventional Equity Funds
For the second week in three conventional fund (ex-ETF) investors were net redeemers of equity funds, removing $1.7 billion. Domestic equity funds, handing back a little more than $1.6 billion, witnessed their third weekly net outflows while posting a 1.79% return on average for the flows week. Their nondomestic equity fund counterparts, posting a 1.85% return on average, witnessed their first week of net outflows in 12 (but only to the tune of -$52 million). On the domestic equity side fund investors shunned large-cap funds (-$1.4 billion net) and equity income funds (-$458 million), while on the nondomestic equity side investors were net purchasers of international equity funds (+$648 billion) and net redeemers of global equity funds (-$700 million).
Conventional Fixed Income Funds
For the first week in four taxable bond funds (ex-ETFs) witnessed net outflows, handing back just $54 million this past week. Fund investors padded the coffers of corporate investment-grade debt funds (+$1.4 million) and corporate high-quality funds (+$89 million) but were net redeemers of corporate high-yield funds (-$833 million) and government-mortgage funds (-$439 million) for the week. With inflation figures looking somewhat tame, Lipper’s Inflation-Protected Bond Funds classification witnessed its third week of net redemptions, handing back $40 million this past week. However, bank loan funds (+$408 million) witnessed their fourteenth consecutive week of net inflows. For the fourth week in five municipal bond funds (ex-ETFs) witnessed net inflows, taking in $74 million while posting a 0.08% return on average for the fund-flows week.
