by Ed Moisson.
The week ended Wednesday, August 14 saw some optimistic economic indicators amid continuing nervousness regarding the Fed’s bond-buying program. Mutual fund investors were net purchasers, injecting a net $6.7 billion for the week, but municipal bond funds remained out of favor.
On August 14, stocks experienced a sharp pullback, with the Dow Jones Industrial Average witnessing its first triple-digit decline since June. In the prior week ended Friday, August 9, the DJIA experienced its first weekly decline in six, shedding 1.49%.
Investors began experiencing a little bull market fatigue, since the most recent rally was getting a little long in the tooth. They had embraced better-than-expected earnings reports over the last several weeks — about 67% of the 446 companies in the S&P 500 that have reported Q2 earnings to date beat expectations, according to the our Proprietary Research team.
For the weekly fund-flows period ended Wednesday, August 14, markets remained range bound, with investors first cheering data that showed better-than-expected June trade figures for China and data that seriously delinquent mortgages had fallen to a five-year low in June, according to the Mortgage Bankers Association.
However, after some reprieve from concerns in prior weeks of an imminent reduction in the Federal Reserve’s bond-buying program, market pundits began another round of “taper tantrums” as the Labor Department’s four-week moving average for initial unemployment benefit claims fell to its lowest level since November 2007.
Late in the week, equity markets got a slight boost when the Commerce Department reported that July retail sales increased 0.2%. Investors were also given the message that consumers were still in a spending mode but at a slightly lower-than-expected level. But the Dow’s drop came as investors contemplated the recent jump in borrowing costs and the possibility that the Fed will cut its mortgage purchases in September or December.
Nonetheless, for the week ended August 14, mutual fund investors were net purchasers of fund assets (including conventional funds and exchange-traded funds [ETFs]), injecting a net $6.7 billion. Excepting municipal bond funds, which witnessed their 12th consecutive week of net outflows (-$1.2 billion), all the major macro-groups witnessed net inflows. Equity funds attracted some $0.9 billion net, taxable bond funds took in $1.3 billion, and money market funds received $5.6 billion.
For the first week in seven, equity ETFs experienced net outflows, handing back some $1.6 billion. ETF investors became somewhat more risk averse as tensions rose in Egypt and as concerns about Fed tapering re-emerged. ETF investors appeared slightly at odds with their trades, allocating the largest sum of net new money to iShares Core S&P 500 (+$441 million net), while redeeming the largest amount from SPDR S&P 500 (-$1.8 billion net).
With oil prices on the rise as a result of rising tensions in the Middle East, it wasn’t surprising to see SPDR S&P Oil & Gas Exploration and Production also rising, taking in $199 million net. In risk-off trades ETF investors also were net redeemers from iShares Russell 2000 ETF (-$1.0 billion net) and Financial Select Sector SPDR Fund (-$423 million net).
Mutual fund (ex-ETF) investors’ interest in equity mutual funds remained intact; they injected a net $2.6 billion for the week (for the funds’ 32nd consecutive week of net inflows, bringing their year-to-date total to +$130.5 billion net). Domestic equity funds attracted net inflows for the 10th consecutive week, taking in $1.0 billion, while their nondomestic equity fund counterparts took in $1.6 billion and attracted net new money for the 11th consecutive week.
On the domestic side, investors preferred large-cap funds along with gold and natural resources funds, adding a net $269 million and $268 million, respectively, to their coffers. 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 $1.5 billion into international funds, with about $338 million of the sum being allocated to emerging markets funds.
Taxable bond funds (ex-ETFs) took in a net $1.3 billion for the week for their second consecutive week of net inflows. With Treasury yields remaining on the high side, investors once again kept their backs turned on government Treasury & mortgage funds and government mortgage funds, redeeming a net $407 million and $286 million, respectively.
As fixed income investors continued to anticipate rising interest rates, however, the adjustable-rate loan participation funds group attracted $1.3 billion net for the week—for its 61st week of consecutive net inflows, while flexible portfolio funds attracted some $0.9 billion. Still suffering from the hangover caused by Detroit’s bankruptcy, municipal debt funds (ex-ETFs) experienced net outflows for the 12th week in a row, handing back some $1.2 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.