May 30, 2019

U.S. Weekly FundFlows Insight Report: Fund Investors Duck for Cover for the Week

by Tom Roseen.

For the first week in six, investors were overall net redeemers of fund assets (including those of conventional funds and ETFs), withdrawing $8.6 billion for Lipper’s fund-flows week ended May 29, 2019. Once again, fund investors were net purchasers of money market funds (+$17.5 billion, their sixth consecutive week of net inflows) and municipal bond funds (+$919 million), but were net redeemers of equity funds (-$22.0 billion) and taxable fixed income funds (-$5.1 billion).

Market Wrap-Up

For the fund-flows week ended May 29, 2019, the broad-based U.S. indices suffered their largest one-week decline since the fund-flows week ended December 19, 2018, as investors lamented a protracted U.S./China trade standoff. While the Shanghai Composite Price Only Index (+0.70%) got a shot in the arm during the flows week on news that China’s use of rare earth minerals (for the production of mobile phones, computer chips, and the like) could possibly be used as economic leverage against the U.S., the Russell 2000 Price Only Index (-2.72%) and the NASDAQ Composite Price Only Index (-2.63%) suffered the largest weekly losses of the U.S. indices. Overseas, both the Xetra DAX Total Return Index (-2.82%) and the FTSE 100 Price Only Index (-2.24%) witnessed declines as investors digested news that U.K. Prime Minister Theresa May announced she would be stepping down on June 7.

On Thursday, May 23, U.S. stocks closed lower as technology and energy-oriented issues were pummeled because trade tensions between the U.S. and China escalated. For the day, the July contract for West Texas Intermediate crude sank 5.7% to settle at $57.91/bbl. Investors shrugged off a decline in first-time jobless benefits for the prior week and focused on the IHS Markit flash index of U.S. manufacturers falling to a nine-and-a-half year low for May. However, on Friday, May 24, the equity markets were pushed higher on news that President Donald Trump said the U.S. could ease up on its ban against Huawei Technologies as part of a wider trade deal with China. Investors then took a breather from recent carnage ahead of the three-day Memorial Day holiday weekend.

On Tuesday, May 28, U.S. markets lost some ground as investors ducked for cover after Trump indicated that Chinese tariffs could go up substantially. Investors ignored the news that May consumer confidence rose to 134.1 from 129.2 in April and instead focused on news that Italy’s euroskeptic party fared well in European parliamentary elections over the weekend, with many believing the EU is headed for a budget showdown. On Wednesday, May 29, market participants couldn’t shake their concerns over how a protracted tariff fight might impact global growth after the editor in chief of China’s Global Times tweeted that China was considering restricting rare earth exports to the U.S.

Exchange-Traded Equity Funds

For the third week in four, equity ETFs witnessed net outflows, handing back a little less than $3.2 billion for the most recent fund-flows week. Authorized participants (APs) were net redeemers of domestic equity ETFs (-$2.5 billion), also for the third week in four. Meanwhile, nondomestic equity ETFs also witnessed net outflows for the third consecutive week, handing back $667 million this past week. Technology Select Sector SPDR ETF (XLK, +$719 million) and iShares Core MSCI EAFE ETF (IEFA, +$534 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 (SPY, -$1.6 billion) experienced the largest individual net redemptions and Health Care Select Sector SPDR ETF (XLV, -$923 million) suffered the second largest net redemptions of the week.

Exchange-Traded Fixed Income Funds

For the third week in a row, taxable fixed income ETFs witnessed net inflows, taking in $1.1 billion. APs were net purchasers of government Treasury ETFs (+$1.4 billion) and corporate investment-grade debt ETFs (+$282 million), while being net redeemers of corporate high yield ETFs (-$862 million). iShares 7-10 Year Treasury Bond ETF (IEF, +$486 million) and iShares 20+ Year Treasury Bond ETF (TLT, +$428 million) attracted the largest amounts of net new money of all individual taxable fixed income ETFs. Meanwhile, SPDR Bloomberg Barclays High Yield Bond ETF (JNK, -$426 million) and iShares iBoxx $ High Yield Corporate Bond ETF (HYG, -$316 million) handed back the largest individual net redemptions for the week. For the eighth week in a row, municipal bond ETFs witnessed net inflows, taking in $137 million.

Conventional Equity Funds

For the fifteenth consecutive week, conventional fund (ex-ETF) investors were net redeemers of equity funds, withdrawing $18.8 billion. However, a very large liquidation reported by Fidelity Total Market Index Fund, Class F accounted for $17.1 billion of the net outflows for the week. Domestic equity funds, handing back a little less than $18.4 billion, witnessed their sixteenth weekly net outflows while posting a 2.45% loss on average for the fund-flows week. Their nondomestic equity fund counterparts, posting a 1.39% loss on average, witnessed their tenth consecutive weekly net outflows (-$376 million this past week). On the domestic equity side, fund investors gave a cold shoulder to large-cap funds (-$17.5 billion net, see note above) and real estate funds (-$353 million), while investors on the nondomestic equity side were net sellers of international equity funds (-$347 million) and global equity funds (-$29 million).

Conventional Fixed Income Funds

For the third consecutive week, taxable bond funds (ex-ETFs) witnessed net outflows, handing back some $6.2 billion this past week while posting a 0.20% loss for the flows week. However, a large liquidation reported by Fidelity U.S. Bond Index Fund, Class F accounted for $6.5 billion of those net redemptions. Investors were net redeemers of corporate investment-grade debt funds (+$5.4 billion, please see note above) and flexible funds (-$466 million), while government-mortgage funds (+$136 million) and international & global debt funds (+$116 million) witnessed the largest net inflows of the group. For the twenty-first straight week, municipal bond funds (ex-ETFs) witnessed net inflows—taking in $782 million—while posting a 0.24% return on average (their fifth weekly market gain in six).

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