July 25, 2019

U.S. Weekly FundFlows Insight Report: Fund Investors and APs Sour on Equities for the Week

by Tom Roseen.

For the seventh week in a row, investors were overall net purchasers of fund assets (including those of conventional funds and ETFs), injecting $23.6 billion for Lipper’s fund-flows week ended July 24, 2019. Fund investors were net purchasers of money market funds (+$26.0 billion), taxable fixed income funds (+$4.0 billion), and municipal bond funds (+$2.0 billion, its largest weekly net inflows on record going back to 1992). They were, however, net redeemers of equity funds (-$8.4 billion).

Market Wrap-Up

For the fund-flows week ended July 24, 2019, progress on the U.S./China trade talks, general agreement on the federal budget and debt ceiling, and good Q2 corporate earnings reports generally pushed markets higher. The Russell 2000 Price Only Index (+1.91%) witnessed the largest gain for the fund-flows week, followed by the NASDAQ Composite Price Only Index (+1.67%) and the S&P 500 Price Only Index (+1.18%). Overseas, the Shanghai Composite Price Only Index suffered the only negative returns, declining 0.21% for the week, while the Nikkei 225 Price Only Index (+1.14%) experienced the strongest return of the broad-based indices.

On Thursday, July 18, stocks snapped a two-day losing streak after New York Federal Reserve President John Williams said aggressive action by the central bank should be undertaken at the first sign of a slowdown, which was well received by investors. However, on Friday, stocks dipped on speculation that the Fed would only cut its prime lending rate by 25 basis points (bps) during its July meeting rather than the 50 bps that some pundits had anticipated.  Oil prices rallied after reports that Iran had seized a British oil tanker in the Strait of Hormuz, increasing geopolitical concerns.

On Monday, July 22, stocks rallied on a better-than-expected Q2 earnings season and on hopes of a rate cut at the end of the month. Of the 185 S&P 500 constituents that have reported Q2 earnings thus far, 75% have beaten analyst expectations, according to Refinitiv’s Proprietary Research team. In addition, investors were cheered by the news that a face-to-face meeting between Chinese and U.S. trade negotiators was set for next week. While remaining somewhat range-bound, stocks advanced on Tuesday after congressional leaders announced a budget deal with the White House that will raise the government’s debt ceiling, removing one more possible stumbling block going forward. However, rising geopolitical tensions surrounding Iran and the Strait of Hormuz roiled energy prices. On Wednesday, July 24, the S&P 500 and NASDAQ indices closed at record highs despite mixed economic news. However, oil prices slid as investors once again assessed the impact lower energy demand would have on prices.

Exchange-Traded Equity Funds

For the first week in three, equity ETFs witnessed net outflows, handing back a little more than $2.7 billion for the most recent fund-flows week. Authorized participants (APs) were net sellers of domestic equity ETFs (-$3.0 billion), also for the first week in three. Meanwhile, nondomestic equity ETFs witnessed net inflows for the second week in a row, but attracted just $271 million this past week. SPDR Gold (GLD, +$875 million) and Goldman Sachs ActiveBeta U.S. Large-Cap Equity ETF (GSLC, +$791 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, -$5.5 billion) experienced the largest individual net redemptions and Invesco QQQ Trust 1 (QQQ, -$1.3 billion) suffered the second largest net redemptions of the week.

Exchange-Traded Fixed Income Funds

For the eleventh week in a row, taxable fixed income ETFs witnessed net inflows, taking in $1.6 billion. APs were net purchasers of corporate high-yield debt ETFs (+$1.2 billion) and corporate investment-grade debt ETFs (+$546 million), while being net redeemers of international & global debt ETFs (-$351 million) and government-Treasury ETFs (-$295 million). iShares iBoxx $ High Yield Corporate Bond ETF (HYG, +$599 million) and SPDR Bloomberg Barclays High Yield Bond ETF (JNK, +$586 million) attracted the largest amounts of net new money of all individual taxable fixed income ETFs. Meanwhile, iShares 1-3 Year Treasury Bond ETF (SHY, -$516 million) and iShares JPM USD Emerging Markets Bond ETF (EMB, -$343 million) handed back the largest individual net redemptions for the week. For the sixth consecutive week, municipal bond ETFs witnessed net inflows, taking in $256 million.

Conventional Equity Funds

For the twenty-third consecutive week, conventional fund (ex-ETF) investors were net redeemers of equity funds, withdrawing $5.7 billion. Domestic equity funds, handing back a little less than $4.2 billion, witnessed their twenty-fifth weekly net outflows while posting a 1.36% return on average for the fund-flows week. Their nondomestic equity fund counterparts, posting a 0.74% gain on average, witnessed their fifth consecutive weekly net outflows (-$1.5 billion this past week). On the domestic equity side, fund investors gave a cold shoulder to large-cap funds (-$2.8 billion) and real estate funds (-$567 million), while investors on the nondomestic equity side were net sellers of international equity funds (-$1.1 billion) and global equity funds (-$395 million).

Conventional Fixed Income Funds

For the sixth consecutive week, taxable bond funds (ex-ETFs) witnessed net inflows, taking in some $2.4 billion this past week while posting a 0.33% return for the fund-flows week. Investors were net redeemers of flexible funds (-$106 million) and international & global debt funds (-$99 million), while corporate investment-grade debt funds (+$1.9 billion) and government-Treasury funds (+$241 million) witnessed the largest net inflows of the group. For the twenty-ninth straight week, municipal bond funds (ex-ETFs) witnessed net inflows—taking in $1.7 billion—while posting a 0.13% gain on average for their sixth weekly market gain.

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