Lipper U.S. Weekly FundFlows Insight Report: Money Market Funds Pace the Overall Net Inflows as Investors Wait Out Market Uncertainty

Lipper’s fund asset groups (including both mutual funds and ETFs) took in $11.3 billion net for the fund-flows week ended Wednesday, October 10. Money market funds, having net-positive flows of $20.8 billion, moved conversely to the other asset groups. The net outflows among the other asset groups were led by taxable bond funds (-$5.9 billion), with equity funds and municipal bond funds contributing $2.6 billion and $848 million to the total net-negative flows.

Market Overview

The Dow Jones Industrial Average suffered its third largest point loss in history (-831.83 points) in trading on Wednesday, October 10. The Dow was driven lower by the continued spike in Treasury yields and increasing fears that the Federal Reserve will accelerate its money-tightening policy. (The only larger point losses for the Dow [both over 1,000 points] occurred in February of this year.) The yield on the ten-year Treasury note closed the fund-flows week at 3.19%; as little as one month ago (September 12) it was below 3.00%. (The yield on the ten-year note had not been this high since early July 2011.) The S&P 500 Index did not escape Wednesday unscathed; it was off 3.29%—a larger percentage dip than the Dow’s negative 3.15%. Wednesday marked the S&P 500’s fifth consecutive daily decline, representing the index’s longest losing streak in almost two years. For the week the S&P 500 and the Dow closed down 4.78% and 4.58%, respectively. The surge in yields pushed investors away from the more risky growth stocks (the technology sector) and into safer plays (the utility and consumer staples sectors). It bears watching whether the start of corporate earnings season on Friday will have an impact on this recent downturn.

ETFs

ETFs suffered net outflows (-$5.3 billion) for the first week in five. The lion’s share of the net-negative flows came from taxable bond ETFs (-$5.1 billion), while muni debt ETFs contributed $211 million to the total net outflows. Equity ETFs posted a slight net inflow of $17 million. For taxable bond ETFs the largest individual net outflows were mixed between high-yield and investment-grade products: iShares iBoxx $ High Yield Corporate Bond ETF (HYG, -$2.6 billion), iShares Core U.S. Aggregate Bond ETF (AGG, -$2.0 billion), and SPDR Bloomberg Barclays High Yield Bond ETF (JNK, -$1.7 billion). Despite the flat results from equity ETFs, there were some significant individual moves during the week, including SPDR S&P 500 ETF (SPY, +$2.6 billion) and iShares Russell 1000 ETF (IWB, -$2.6 billion).

Equity Mutual Funds

Equity mutual funds had negative net flows for the sixteenth straight week, with $2.6 billion leaving their coffers. During this 16-week run the group saw almost $55 billion net leave. Both domestic equity funds (-$1.7 billion) and nondomestic equity funds (-$932 million) contributed to the total net outflows for equity funds this week. It was the twenty-first straight week of net outflows for domestic equity funds and the third for nondomestic equity funds.

Fixed Income Mutual Funds

Both the taxable bond (-$844 million) and muni debt (-$636 million) mutual fund groups saw net money leave this past week, marking the second straight week of net outflows for each. On the taxable bond side the Ultra-Short Obligation Funds classification (+$853 million) continued to attract net new money from investors for a twenty-fifth straight week, during which it took in over $13.3 billion. But these positive net flows were overtaken by money leaving a host of other taxable bond peer groups, led by High Yield Funds (-$719 million). Below-investment-grade debt also took the hardest hit on the muni debt fund side of the ledger, with High Yield Muni Debt Funds having net outflows of $399 million.

Money Market Mutual Funds

Investors moved assets to money market funds (+$20.8 billion net) in what appeared to be a gambit to wait out the uncertainty seen in the market at the end of the fund-flows week. The lion’s share of the money market fund peer groups had net-positive flows, paced by Institutional U.S. Government Money Market Funds (+$6.9 billion) and Institutional Money Market Funds (+$4.2 billion).