U.S. equity markets closed lower last Friday for the fourth time in the last five weeks as investors continue to be spooked by indications the Federal Reserve will taper off its bond-buying program. Chairman Bernanke’s recent remarks didn’t calm nerves — the S&P 500 this past week saw its largest two-day drop since last November. The funds industry was hit hard. For the week ended Wednesday, June 26, investors pulled roughly $20 billion out of mutual funds and exchange-traded funds (ETFs), excluding money market funds. That was the largest weekly net outflow since the week ending August 10, 2011, when markets were in turmoil over Greece’s debt crisis.
Since Monday, June 24, the DJIA has rebounded nearly 473 points from its mid-day low, driven by upbeat economic news and tamer reiterations from the Fed that any pullback of quantitative easing would be based on the economic outlook, which may not be as great as previously suggested. Unfortunately, this late rally in stocks did not deter investors from pulling back some of their fund exposure.
Uncertainty in the bond markets pushed investors to the door. The taxable bond fund universe, including ETFs, reported net redemptions of $8.6 billion for the week. Although not a weekly record, the aggregate outflows from this group over the past four weeks (-$23.7 billion net) was the heaviest since the end of October 2008.
High-yield products continued to lead the charge with $3.1 billion of net redemptions, making it the group’s fifth consecutive week of net outflows for a four-week net-outflow record of $11.4 billion. Corporate investment-grade debt products also suffered; their weekly net redemptions totaled $2.3 billion, for their second largest weekly outflow since October 2008. Bank loan products continued to be the bright spot for the fixed income fund industry; they extended their inflow streak to 54 weeks with $1.1 billion net.
Equity mutual funds and ETFs ended the week down $6.8 billion net as broad selling across ETFs (-$8.4 billion) pulled the broader group into the red; SPDR S&P 500 ETF (SPY) led all outflows with $3.6 billion net. The more retail-dominated mutual fund equity market continued to show resilience with net inflows of $1.6 billion, extending the group’s winning streak for the year. Investors continued to be drawn to nondomestic offerings (+$1.3 billion net), while domestic equity mutual funds (+$282 million net) also ended the week in the black. The biggest surprise with stock funds may have come within the developing market space; emerging-market mutual funds and ETFs eked out net inflows of $84 million—not a large sum, but a clear improvement from the $6.0 billion of net outflows the group suffered over the previous four weeks.
Municipal debt funds reported record weekly net outflows of $4.5 billion. Investors were quick to accelerate their selling from these spread-based products; the average municipal debt fund lost 2.28% in performance over the week. Money market funds were the only main asset group that ended the week on top, adding roughly $5.0 billion net to their accounts.
For more information on this week’s fund flows data, please refer to Lipper’s database or watch the following video.
For more information on this week’s fund flows data, please refer to Lipper’s U.S. fund flows website.
