November 29, 2018

U.S. Weekly FundFlows Insight Report: Despite a Strong Market Rally, Fund and ETF Investors Remain Guarded During the Week

by Tom Roseen.

For the first week in four investors were overall net sellers of fund assets (including those of conventional funds and ETFs), withdrawing $6.3 billion for Lipper’s fund-flows week ended November 28, 2018. Fund investors were net purchasers of money market funds (+$5.0 billion) while being net redeemers of equity funds (-$8.5 billion), taxable fixed income funds (-$2.4 billion), and municipal bond funds (-$379 million).

Market Wrap-Up

In the Thanksgiving shortened fund-flows trading week investors appeared to cheer the dovish tone set by Federal Reserve Board Chair Jerome Powell during his speech at the Economic Club of New York. The NASDAQ Composite Price Only Index (+4.58%) witnessed the strongest return for the flows week, followed by the Dow Jones Industrial Average Price Only Index’s 3.69% and the S&P 500 Price Only Index’s 3.54%. Investors initially embraced the U.K. Prime Minister Theresa May’s negotiations with the European Union for Britain to exit the trade bloc and news that Italy’s coalition government was prepared to cut its budget deficit target—easing tensions between the European Union and Rome.  However, rising U.S.-China trade tensions weighed on select foreign markets. The Nikkei 225 Price Only Index posted the only plus-side return for the flows week, rising 2.17%, while the Shanghai Composite Price Only Index (-2.12%) and the FTSE 100 Price Only Index (-0.85%) witnessed the largest declines.

At the beginning of the flows week all three major U.S. indices posted their worst Thanksgiving week close since 2011, falling at least 3.5% for the week as crude oil’s bear market worsened on Friday November 23 and energy firms were under pressure.  However, U.S. stocks rallied on Monday after U.S. crude oil futures rose above $51/barrel mark and retail shares jumped on expectations of strong sales as shoppers looked for deals on Cyber Monday. According to estimates by Adobe Systems, internet sales rose by 26.4% year-over-year from Wednesday to Friday.

On Tuesday, November 27, defensive stocks got a shot in the arm as U.S.-China trade jitters increased ahead of the G-20 group meeting scheduled to be held on Friday, November 30, in Buenos Aires. Healthcare, consumer staples, and utilities were among the largest gainers on the day. Investors also kept a cautious eye on a report that showed home prices across the country were rising at the slowest pace in nearly two years. On Wednesday, November 28, the S&P 500 and DJIA witnessed their best one-day rise since March 26, after investors interpreted Fed Chair Powell’s comments on interest rates as leaning toward the dovish side. In its second reading, the Commerce Department said GDP grew at 3.5% annual rate in Q3—which was supportive of an improving U.S. economy.

Exchange-Traded Equity Funds

For the third week in a row equity ETFs witnessed net inflows, however, only taking in $712 million for the most recent flows week. Authorized participants (APs) were net sellers of domestic equity ETFs (-$691 million), redeeming money from the group also for the first week in three. However, for the ninth week in a row nondomestic equity ETFs witnessed net inflows, this past week attracting $1.4 billion. Consumer Discretionary Select Sector SPDR ETF (+$452 million) and iShares Core MSCI Emerging Markets ETF (+$356 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 (-$1.7 billion) experienced the largest individual net redemptions, and Invesco QQQ Trust 1 (-$489 million) suffered the second largest net redemptions of the week.

Exchange-Traded Fixed Income Funds

For the second week in row taxable fixed income ETFs witnessed net inflows, this past week taking in $1.7 billion. APs were net purchasers of government-Treasury ETFs (+$2.6 billion) and international & global debt ETFs (+$124 million) while being net redeemers of corporate high-yield ETFs (-$720 million) and corporate investment-grade debt ETFs (-$218 million). iShares 1-3 Year Treasury Bond ETF (+$866 million) and iShares Short Treasury Bond ETF (+$619 million) attracted the largest amounts of net new money of all individual taxable fixed income ETFs. Meanwhile, iShares iBoxx $ Investment-Grade Corporate Bond ETF (-$837 million) and iShares iBoxx $ High Yield Corporate Bond ETF (-$524 million) handed back the largest individual net redemptions for the week. For the third week in row municipal bond ETFs witnessed net inflows, this past week taking in only $35 million.

Conventional Equity Funds

For the twenty-third week running conventional fund (ex-ETF) investors were net redeemers of equity funds, removing $9.2 billion. Domestic equity funds, handing back a little less than $6.0 billion, witnessed their twenty-eighth weekly net outflows while posting a 3.19% return on average for the flows week. Their nondomestic equity fund counterparts, posting a 2.13% gain on average, witnessed their tenth consecutive weekly net outflows (-$3.2 billion this past week). On the domestic equity side fund investors shunned large-cap funds (-$3.6 billion net) and small-cap funds (-$826 million), while on the nondomestic equity side investors were net redeemers of international equity funds (-$2.7 billion) and global equity funds (-$511 million).

Conventional Fixed Income Funds

For the eighth week in nine taxable bond funds (ex-ETFs) witnessed net outflows, handing back $4.1 billion this past week. Fund investors were net redeemers of corporate investment-grade debt funds (-$1.5 billion, flexible funds (-$1.4 billion), and corporate high yield funds (-$481 million). For the tenth consecutive week municipal bond funds (ex-ETFs) witnessed net outflows, handing back $413 million while posting a 0.10% gain on average (their third weekly gain in row).


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