by Ed Moisson.
With 15 100-point days (both up and down) for the Dow Jones Industrial Average in June and on fears of imminent Federal Reserve “tapering,” investors’ resolve faltered. In June the Fed indicated that purchases of mortgage-backed securities could be reduced as early as this year. While the Fed members spooked investors, the simple fact was the Fed has begun to see improvement in the U.S. economy. In fact, much of the recent economic news had indicated slow but steady improvement on many U.S. economic fronts. However, some disappointing economic news kept investors on the defense in June.
Despite the continued selloff in equities toward June month-end, investors continued to push Treasury prices lower on tapering concerns, sending benchmark ten-year Treasury yields to their highest close since August 3, 2011. After hitting a closing high of 2.60% late in the month, Treasury yields generally eased slightly, ending the month up 36 basis points (bps) at 2.52%. The 109-bp increase in yield since its low on July 26, 2012 (1.43%) represents an astounding 76% increase in yields in less than 12 months.
For the first month in 12 mutual fund investors were net redeemers of fund assets in June. While they padded the coffers of stock & mixed-asset funds (+$21.8 billion), they redeemed the largest monthly amount since at least January 2008 from bond funds (-$65.2 billion). For the fifth month in six they pulled cash out of money market funds (-$16.4 billion for June).
In the ETF universe, however, for the first month in 19 exchange-traded funds (ETFs) suffered net redemptions (-$18.8 billion), for their largest monthly outflows on record, and dropping their year-to-date net inflows to $61.5 billion. Stock and mixed-equity ETFs, with net outflows of $9.6 billion, handed back a little over half of the net redemptions for the month. U.S. Diversified Equity (USDE) products continued to lead the charge with net inflows of $4.5 billion, while investors were net redeemers of the other major equity macro-groups, excluding Mixed-Asset Funds, which took in only about $12.2 million. Concerns over rising interest rates forced investors to review their fixed income holdings, with bond ETFs suffering their largest monthly net redemptions on record (-$9.2 billion). Similar to their conventional mutual fund brethren, investors pulled cash out of longer-dated products in preference for higher quality and shorter durations.
To read our complete June FundFlows Insight Report, please click here.