by Pat Keon, CFA.
For the first week in eight, Lipper’s fund asset groups (including both mutual funds and exchange-traded funds) suffered overall net outflows as slightly more than $8.3 billion left their coffers during the fund-flows trading week ended Wednesday, July 31. The net negative flows were driven by money market funds (-$14.1 billion) while all other asset groups took in net new money as investors moved money off the sidelines. Equity funds (+$3.6 billion) had the largest net inflows, while taxable bond funds (+$1.8 billion) and municipal bond funds (+$434 million) also had net positive flows.
Despite the Federal Reserve cutting interest rates by 25 basis points, the equity indices all finished down for the week. The NASDAQ Composite Index, the Dow Jones Industrial Average, and the S&P 500 Index were off 1.76%, 1.49%, and 1.30%, respectively, with the lion’s share of those losses coming on Wednesday, July 31. Equity markets were off that day because even though the Fed announced the rate cut, statements from Federal Reserve Chairman Jerome Powell indicated that this reduction might be a one-off. Powell stated that Fed officials viewed this rate cut as a “mid-cycle adjustment” and were not committing to additional decreases as they don’t see the economic weakness that would warrant that type of action.
ETFs had net inflows of $10.5 billion as all three asset groups took in net new money. Equity ETFs paced the increases at $7.0 billion, with the largest individual net inflows belonging to SPDR S&P 500 ETF (SPY, +$2.3 billion) and Invesco QQQ Trust (QQQ, +$1.7 billion). Taxable bond ETFs had the next largest net positive flows at $3.4 billion, paced by iShares 20+ Years Treasury Bond ETF (TLT, +$838 million) and Schwab Short-Term U.S. Treasury ETF (SCHO, +$572 million). Municipal debt ETFs contributed $42 million to the overall net inflows.
Equity Mutual Funds
Equity mutual funds (-$3.5 billion) saw money leave for the twenty-fourth consecutive week. Both domestic equity (-$2.6 billion) and nondomestic equity funds (-$904 million) contributed to this week’s net outflows. Equity mutual funds have had net negative flows of $99.8 billion for the year to date and appear to be on pace for their fifth consecutive annual net outflow. A closer look at this week’s data reveals that the Large-Cap Core Funds (-$492 million) and Multi-Cap Core Funds (-$377 million) peer groups were most responsible for the net negative flows.
Fixed Income Mutual Funds
Municipal debt funds (+$392 million) took in net new money for the thirtieth consecutive week, but taxable bond funds had their streak of six consecutive net positive inflows broken as they saw $1.7 billion leave. The net positive flows were fairly evenly distributed among the national muni peer groups as General Muni Debt Funds, Short/Intermediate Muni Debt Funds, High Yield Muni Debt Funds, and Intermediate Muni Debt Funds took in $84 million, $76 million, $75 million, and $63 million, respectively. The most significant net outflows among taxable bond funds belonged to the Loan Participation Funds (-$817 million) peer group.
Money Market Mutual Funds
Money market funds were the only fund asset group to suffer net outflows (-$14.1 billion) this week. This broke a streak of five consecutive net inflows and net positive flows in 13 of the last 14 weeks. Money market funds took in more than $231 billion in net new money during this 14-week time period and are up $203.7 billion for the year to date. This week’s net negative flows were driven by the Institutional U.S. Treasury Money Market Funds (-$6.3 billion), Institutional Money Market Funds (-$4.3 billion), and Institutional U.S. Government Money Market Funds (-$3.2 billion) peer groups.