June 27, 2019

U.S. Weekly FundFlows Insight Report: Fund Flows Turn Conservative for the Week

by Tom Roseen.

For the third week in a row, investors were overall net purchasers of fund assets (including those of conventional funds and ETFs), injecting $25.5 billion for Lipper’s fund-flows week ended June 26, 2019. Fund investors were net purchasers of money market funds (+$21.5 billion), taxable fixed income funds (+$6.6 billion), and municipal bond funds (+$1.7 billion), but they were net redeemers of equity funds (-$4.3 billion).

Market Wrap-Up

For the fund-flows week ended June 26, 2019, the broad-based U.S. indices generally suffered small declines as investors focused on rising tensions between Iran and the U.S. after Iran downed an unmanned U.S. drone in the Strait of Hormuz. Investors pushed the S&P 500 to a record close on Thursday, June 20, after the Federal Reserve signaled it would be willing to cut its benchmark interest rates if the economic outlook didn’t show signs of improvement. Despite this, markets were dragged down the remainder of the week by lower-than-expected economic data and uncertainty ahead of the G-20 meeting set to start at the end of this week. The Dow Jones Industrial Average Price Only Index managed to stay on the plus-side, returning 0.12% for the week. However, the other broad-based U.S. indices were in the red, with the S&P 500 Price Only Index (-0.43%) mitigating losses better than the other indices—the Russell 2000 Price Only Index (-2.43%) suffered the largest decline. Overseas, the Shanghai Composite Price Only Index managed to remain strongly in the black, posting a handsome weekly return of 2.28%, followed by the Xetra DAX Total Return Index (+0.92%).

On Thursday, June 20, investors cheered a dovish statement by Fed Chair Jerome Powell in which he stated, “The case for somewhat more accommodative policy has strengthened.” Many pundits interpreted this to mean we could see a 25-50 basis point cut in rates as early as July. This news pushed the S&P 500 to its first record close in seven weeks. The downing of the U.S. drone by Iran capped further upside returns. Increased tensions between Iran and the U.S. placed a pall over the markets on Friday, causing the broad market indices to retreat. Gold got a shot in the arm on the day, trading above the $1,400 per ounce mark for the first time since 2013 as investors focused on increasing global uncertainty and a decline in Markit’s flash purchasing managers index reading in June.

On Monday, June 24, the Dow managed to post slight gains, but fresh economic sanctions on Iran pulled down the broader stock market. News the June ifo Business Climate Index, which measures German business sentiment, fell to its lowest value since November 2014 raised concerns over global growth. Weaker-than-expected U.S. housing and consumer confidence data, along with Powell’s “wait-and-see” stance on interest rates—in which he made the case that cuts were not a done deal—caused markets to drop further on Tuesday. The rising tension between Iran and the U.S. pushed both gold and oil prices higher. On Wednesday, investors remained skeptical ahead of the Group of 20 meeting in Japan, where many are hoping that the trade spat between the U.S. and China can be put back on track.

Exchange-Traded Equity Funds

For the second week in three, equity ETFs witnessed net inflows, taking in a little more than $5.0 billion for the most recent fund-flows week. Authorized participants (APs) were net purchasers of domestic equity ETFs (+$6.0 billion) for the third week in a row. Meanwhile, nondomestic equity ETFs witnessed net outflows for the seventh consecutive week, handing back $976 million this past week. Invesco QQQ Trust 1 (QQQ, +$2.6 billion) and iShares Core S&P 500 ETF (IVV, +$1.7 billion) 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, -$1.8 billion) experienced the largest individual net redemptions and iShares Russell 2000 ETF (IWM, -$846 million) suffered the second largest net redemptions of the week.

Exchange-Traded Fixed Income Funds

For the seventh week in a row, taxable fixed income ETFs witnessed net inflows, taking in $5.4 billion. APs were net purchasers of corporate high yield ETFs (+$1.2 billion) and corporate investment-grade debt ETFs (+$569 million), while being net redeemers of flexible ETFs (-$508 million) and international & global debt ETFs (-$205 million). iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD, +$2.0 billion) and iShares iBoxx $ High Yield Corporate Bond ETF (HYG, +$1.8 billion) attracted the largest amounts of net new money of all individual taxable fixed income ETFs. Meanwhile, iShares 1-3 Year Treasury Bond ETF (SHY, -$347 million) and iShares 20+ Year Treasury Bond ETF (TLT, -$211 million) handed back the largest individual net redemptions for the week. For the second consecutive week, municipal bond ETFs witnessed net inflows, taking in $232 million.

Conventional Equity Funds

For the nineteenth consecutive week, conventional fund (ex-ETF) investors were net redeemers of equity funds, withdrawing $9.3 billion. Domestic equity funds, handing back a little more than $6.0 billion, witnessed their twentieth weekly net outflows while posting a 0.80% loss on average for the fund-flows week. Their nondomestic equity fund counterparts, posting a 0.31% gain on average, witnessed their thirteenth weekly net outflows in fourteen (-$3.3 billion this past week). On the domestic equity side, fund investors gave a cold shoulder to large-cap funds (-$3.6 billion net) and small-cap funds (-$674 million), while investors on the nondomestic equity side were net sellers of international equity funds (-$2.7 billion) and global equity funds (-$554 million).

Conventional Fixed Income Funds

For the second consecutive week, taxable bond funds (ex-ETFs) witnessed net inflows, taking in some $1.2 billion this past week while posting a 0.03% return for the flows week. Investors were net redeemers of flexible funds (-$508 million) and international & global debt funds (-$205 million), while corporate high yield funds (+$1.2 billion) and corporate investment-grade debt funds (+$569 million) witnessed the largest net inflows of the group. For the twenty-fifth straight week, municipal bond funds (ex-ETFs) witnessed net inflows—taking in $1.5 billion—while posting a 0.20% gain on average (their fourth weekly market gain in five).

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