For the second week in three investors were overall net purchasers of fund assets (including those of conventional funds and ETFs), injecting $19.3 billion for Lipper’s fund-flows week ended November 7, 2018. Fund investors were net purchasers of taxable fixed income funds (+$4.1 billion) and money market funds (+$23.9 billion) while being net redeemers of equity funds (-$8.5 billion) and municipal bond funds (-$256 million).
Market Wrap-Up
Investors appeared to cheer the expected government gridlock resulting from the midterm elections. As expected, the Democrats took control of the House of Representatives, while the Republicans shored up their control of the Senate. While trade issues with China remained in focus, investors turned their focus this past week to the midterm elections and the upcoming policy statement from the Federal Reserve Board due out on Thursday. For the fund-flows week investors pushed the broad-based indices back into the black, both for the week and the year to date. The Russell 2000 Price Only Index (+4.68%) witnessed the strongest return for the flows week, followed by the Dow Jones Industrial Average Price Only Index’s 4.24% and the S&P 500 Price Only Index’s 3.77%. Despite investors’ keeping a keen eye on the developments surrounding U.K. Prime Minister Theresa May’s heated negotiations with the European Union for Britain to exit the trade bloc and the impacts a fresh round of sanctions might have on Iranian oil exports, investors pushed the global broad-based indices higher. The FTSE 100 Price Only Index posted the strongest plus-side return for the flows week, rising 2.65%, followed closely by the Xetra DAX Total Return Index (+2.40%) and the Shanghai Composite Price Only Index (+2.18%).
At the beginning of the flows week the S&P 500 posted its first three-day winning streak in six weeks as hopes for resolution in the U.S.-China trade negotiations helped extend the market’s recent rally. A tweet from President Donald Trump early Thursday morning (November 1) hinting at progress in the trade talks raised investor optimism. Upbeat earnings results from Facebook also helped the rally, despite investors’ learning that the ISM manufacturing index had fallen to a six-month low of 57.7%. On Friday stocks closed lower on the day after U.S. officials indicated a near-term resolution to the trade issue wasn’t in the cards. Investors shrugged off news that the U.S. economy had added 250,000 new jobs for October, beating analyst expectations of 202,000, and focused instead on disappointing forward guidance by Apple.
On Monday, November 5, the Dow and the S&P 500 got a shot in the arm as political pundits pointed toward a possible decrease in uncertainty in the markets if power in Congress was split and after learning that China’s President Xi Jinping committed to address criticisms that China’s trade policies are unfair. On Tuesday the major broad-based indices rose before the midterm election results as many in the media touted historical market advantages to midterm gridlock. On Wednesday the Dow and the NASDAQ finished up 550 points and 195 points, respectively, as investors appeared to cheer the Democrats’ taking control of the House and the GOP’s tightening its reins on the Senate. Investors turned their attention to the end of the Fed’s two-day policy meeting, scheduled for Thursday. No interest rate moves were expected, but traders were looking for any indications of policy changes.
Exchange-Traded Equity Funds
For the first week in three equity ETFs witnessed net outflows, handing back a little more than $3.2 billion for the flows week. Authorized participants (APs) were net sellers of domestic equity ETFs (-$5.4 billion), redeeming money from the group also for the first week in three. However, for the fifth week in a row nondomestic equity ETFs witnessed net inflows, this past week attracting $2.2 million. SPDR Dow Jones Industrial Average ETF (+$706 million) and iShares Core MSCI Emerging Markets ETF (+$467 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 (-$2.4 billion) experienced the largest individual net redemptions, and iShares Russell 2000 ETF (-$1.5 billion) 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 $6.6 billion. APs were net purchasers of government-Treasury ETFs (+$3.9 billion) and corporate investment-grade debt ETFs (+$2.2 billion) while being net redeemers of government-mortgage ETFs (-$139 million) and flexible ETFs (-$30 million). iShares 1-3 Year Treasury Bond ETF (+$1.0 billion) and iShares 7-10 Year Treasury Bond ETF (+$631 million) attracted the largest amounts of net new money of all individual taxable fixed income ETFs. Meanwhile, iShares TIPS Bond ETF (-$171 million) and iShares MBS ETF (-$162 million) handed back the largest individual net redemptions for the week. For the second week in three municipal bond ETFs witnessed net outflows, this past week handing back $89 million.
Conventional Equity Funds
For the twentieth week running conventional fund (ex-ETF) investors were net redeemers of equity funds, removing $5.2 billion. Domestic equity funds, handing back a little less than $3.3 billion, witnessed their twenty-fifth weekly net outflows while posting a 3.92% return on average for the flows week. Their nondomestic equity fund counterparts, posting a 3.59% gain on average, witnessed their seventh consecutive weekly net outflows (-$2.0 billion this past week). On the domestic equity side fund investors shunned large-cap funds (-$1.7 billion net) and small-cap funds (-$554 million), while on the nondomestic equity side investors were net redeemers of international equity funds (-$1.7 billion) and global equity funds (-$298 million).
Conventional Fixed Income Funds
For the sixth week running taxable bond funds (ex-ETFs) witnessed net outflows, handing back $2.5 billion this past week. Fund investors injected net new money into corporate high-yield funds (+$409 million) and corporate high-quality funds (+$128 million) but were net redeemers of flexible funds (-$1.3 billion) and balanced funds (-$747 million). For the seventh consecutive week municipal bond funds (ex-ETFs) witnessed net outflows, handing back $166 million while posting a 0.17% loss on average (their first weekly loss in four).
