June 11, 2020

U.S. Weekly FundFlows Insight Report: Investors are Net Purchasers of Long-Term Fund and ETF Assets for the Flows Week

by Tom Roseen.

For the fourteenth week in 15, investors were overall net purchasers of fund assets (including those of conventional funds and ETFs), injecting $3.4 billion for Lipper’s fund-flows week ended June 10, 2020. Fund investors were net purchasers of equity funds (+$20.4 billion, its largest weekly net inflows since March 14, 2018), taxable fixed income funds (+$11.1 billion), and municipal bond funds (+$2.8 billion, its second largest weekly net inflows on record), while being net redeemers of money market funds (-$30.8 billion, the group’s fourth consecutive week of net redemptions) this week.

Market Wrap-Up

Markets rallied during the first part of the fund-flows week, as investors continued to cheer the reopening of their economies, news that global central banks announced new stimulus initiatives, and the largest nonfarm payrolls surprise in history.

On the domestic side, the NASDAQ Composite Price Only Index (+3.48%) witnessed the largest plus-side return for the fund-flows week of the broadly followed U.S. indices—closing above the 10,000 mark for the first time in history—followed by the Dow Jones Industrial Average Price Only Index (+2.74%). Overseas, the Nikkei 225 Price Only Index (+3.77%) chalked up the strongest plus-side returns of the often-followed broad-based global indices.

On Thursday, June 4, the Dow posted its fourth consecutive plus-side day as investors were ignoring continued strife on the Sino/American trade front, embracing news that the European Central Bank would expand its Pandemic Emergency Purchase Program by €600 billion and extending it to the end of 2022, and German Chancellor Angela Merkel’s coalition agreed to an economic stimulus package that would boost consumer spending and business investment.

On Friday, June 5, the Dow rocketed 800 points higher, with cyclicals leading the way, after the Bureau of Labor Statistics said the U.S. economy unexpectedly added 2.5 million jobs in May, beating analyst expectations for 7.3 million job losses. The unemployment rate ticked down to 13.3%. Despite the National Bureau of Economic Research reporting that the U.S. economy officially entered recession territory in February, ending the longest expansion in history (128 months), investors pushed the major U.S. indices higher on Monday, June 8, as they anticipated the Fed would keep its stimulus intact during its two-day policy setting meeting this week, downplaying the nonfarm payrolls surprise for May.

However, on Tuesday, June 9, the Dow closed down some 300 points as investors took their collective foot off the pedal after the strong runup in stocks. That said, the NASDAQ closed at an all-time high on the day after the National Federation of Independent Business said the optimism of small companies rose 4.5 points last month to 94.4, beating analysts’ expectations. On Wednesday, the market remained mixed, with the Dow declining 280 points on the day while the NASDAQ closed above the 10,000 mark for the first time in history after the Fed said it will keep buying bonds and hold interest rates near zero through 2022. Federal Reserve Chair Jerome Powell said, “We’re not thinking about raising rates, we’re not even thinking about thinking about raising rates,” indicating that millions of people will likely need additional government support in the near term. This was also echoed by U.S. Treasury Secretary Steve Mnuchin when he addressed the Senate Small Business and Entrepreneurship Committee, stating that he thought the U.S. economy will need another bipartisan round of legislation.

Exchange-Traded Equity Funds

For the third week in four, equity ETFs witnessed net inflows, taking in $22.2 billion for the most recent fund-flows week (their largest weekly net inflows since January 24, 2018). Authorized participants (APs) were net purchasers of domestic equity ETFs (+$20.0 billion), injecting net new money for the fifth week in a row. For the first week in 16, nondomestic equity ETFs witnessed net inflows, taking in $2.2 billion this past week. SPDR S&P 500 ETF (SPY, +$10.2 billion) and JPMorgan BetaBuilders Europe ETF (BBEU, +$1.7 billion) attracted the largest amounts of net new money of all individual equity ETFs. At the other end of the spectrum, iShares Core S&P 500 ETF (IVV, -$1.7 billion) experienced the largest individual net redemptions, and iShares ESG MSCI USA ETF (ESGU, -$629 million) 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 $1.8 billion this last week. APs were net purchasers of corporate investment-grade debt ETFs (+$3.9 billion), corporate high-yield ETFs (+$2.5 billion), and international & global debt ETFs (+$462 million), while being net redeemers of government-Treasury ETFs (-$4.9 billion). iShares iBoxx $ High Yield Corporate Bond ETF (HYG, +$2.2 billion) and iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD, +$1.1 billion) attracted the largest amounts of net new money of all individual taxable fixed income ETFs. Meanwhile, SPDR Bloomberg Barclays 1-3 Month T-Bill ETF (BIL, -$902 million) and iShares Short Treasury Bond ETF (SHV, -$887 million) handed back the largest individual net redemptions for the week. For the sixth consecutive week, municipal bond ETFs witnessed net inflows, taking in $529 million this week.

Conventional Equity Funds

For the seventh week in a row, conventional fund (ex-ETF) investors were net redeemers of equity funds, withdrawing $1.8 billion, while posting a 1.45% return for the flows week. Domestic equity funds, taking in just $333 million, witnessed their second weekly net inflows in three while posting a 1.46% market return on average for the fund-flows week. Nondomestic equity funds—posting a 1.41% gain on average—experienced their tenth consecutive weekly net outflows, handing back $2.2 billion this past week. On the domestic equity side, fund investors shunned small-cap funds (-$408 million) and equity income funds (-$177 million), while for the first week in nine they injected net new money into the coffers of large-cap funds (+$266 million). Investors on the nondomestic equity side were net redeemers of international equity funds (-$1.7 billion) and global equity funds (-$484 million).

Conventional Fixed Income Funds

For the ninth week in a row, taxable bond funds (ex-ETFs) witnessed net inflows—taking in $9.3 billion this past week—while posting a 0.86% return for the fund-flows week. Investors were net purchasers of corporate investment-grade debt funds (+$5.6 billion) and corporate high-yield debt funds (+$2.6 billion), while government-mortgage funds (-$426 million) and international & global debt funds (-$171 million) witnessed the largest net outflows of the group. For the fifth consecutive week, municipal bond funds (ex-ETFs) witnessed net inflows—taking in $2.2 billion, their second largest weekly net inflows on record—bettered only by the week ended January 8, 2020 (+$2.3 billion). The fund group posted a 0.57% return on average for its sixth straight weekly market gain.

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