by Ed Moisson.
During the week ended Wednesday, July 31, investors cheered better-than-expected durable goods orders, an increase in consumer sentiment, and reports of rising residential real estate prices, pushing stock market indexes higher for the month. Equity mutual funds benefited, while bond funds and money market funds remained out of favor.
The Dow Jones Industrial Average ended July with its eighth monthly plus-side performance (out of nine) and the NASDAQ composite hit its best monthly return since January 2012. It wasn’t all roses however — investors became a little more cautious at mid-week and questioned the staying power of a rally that has propelled the S&P 500 up 4.95% for July and over 18.20% year to date.
Despite hearing about some promising merger-and-acquisition deals, investors remained somewhat pensive ahead of the monetary policy statement from the Federal Reserve Board’s Open Market Committee meeting, which began on July 30. Also in the news — increased borrowing costs may be crimping new and existing home sales. Nevertheless, on the last trading day of the month, ADP said that private sector employers added 200,000 jobs in July and the Commerce Department reported that the U.S. economy grew at an annualized 1.7% rate for the second quarter.
Investors showered attention on equity funds, injecting a net $6.6 billion (the fifth consecutive week of net inflows) into the funds business (including conventional funds and exchange-traded funds [ETFs]).
However, taxable bond funds witnessed net redemptions of just shy of $1.0 billion, money market funds handed back some $5.9 billion, and municipal bond funds took another beating (for the tenth consecutive week), experiencing net outflows of $2.2 billion (their ninth largest outflows on record). With the large redemptions from money market funds and municipal bond funds overwhelming the inflows to equity funds, investors were net redeemers for the week, withdrawing a little less than $3.4 billion.
For the fifth consecutive week, equity ETFs experienced net inflows, attracting some $4.2 billion. Investors continued to add money to a few “risk-on” assets but eased off slightly, injecting the largest net inflows into SPDR S&P 500 ETF (+$2.8 billion, the previous week’s big loser), iShares MSCI EMU ETF (+$518 million), and iShares MSCI Emerging Markets ETF (+$335 million) at the top of the leader board for ETFs.
At the bottom of the pile were Utilities Select Sector SPDR, handing back some $408 million net; WisdomTree Japan Hedged Equity Fund, witnessing net outflows of $267 million; and iShares MSCI Brazil Capped Index, giving back some $250 million.
Investors’ interest in equity mutual funds (ex-ETF) remained intact as they injected a net $2.4 billion for the week (for the 30th consecutive week of inflows, bringing the year-to-date total to +$117.7 billion net). Domestic equity funds attracted net inflows for the eighth consecutive week, taking in $0.9 billion, while their nondomestic equity fund counterparts took in $1.4 billion, attracting net new money for the ninth consecutive week.
On the domestic side, investors moved back toward dividend payers, adding some $297 million net to equity income funds. With a little more focus on the conservative side, mutual fund investors appeared to prefer developed market funds over other world equity funds and injected a net $1.3 billion into international funds.
With Treasury yields still on the high side, investors redeemed a net $147 million from government Treasury funds, $384 million from government Treasury & mortgage funds, and $526 million from government mortgage funds. As fixed income investors continued to anticipate rising interest rates, however, the adjustable-rate loan participation funds group attracted $1.2 billion net for the week—for its 59th week of consecutive net inflows. Caught up in the exodus from Treasuries and govies and the continuing drama surrounding Detroit’s bankruptcy filing, municipal debt funds (ex-ETFs) experienced net outflows for the tenth week in a row, handing back some $2.2 billion.
For more information on this week’s fund flows data, please refer to Lipper’s U.S. Fund Flows website or watch the following video: