$9.2 Billion Pumped into Equity Funds as Markets Seek Direction

The equity markets declined slightly for the week ended March 12, 2014, during a week that began with modest gains and the S&P 500 closing at a record high on Friday, followed by modest losses later in the period. The S&P 500 fell 0.24% for the week, while leaving its year-to-date performance still in positive territory at 1.52%. The NASDAQ declined 0.79% for the week, putting its return at 3.51% for 2014. The equity market appeared to be in a holding pattern awaiting confirmation of an uptick in economic growth, following its snapback from late-January/early-February losses. The market rose modestly on Friday, following a better-than-anticipated jobs report, but gains were muted as concerns lingered about the possible impact of the political situation in Ukraine. This overhang was followed by weaker-than-anticipated export data from China and a downward revision in Japanese economic growth for fourth quarter 2013, which weighed on the market for the balance of the week amid light trading volume. The market appeared to be looking for better direction, ahead of reports on retail sales, wholesale inflation, and consumer sentiment that were due out after the close of the period. The recently beleaguered emerging markets sector fell as the MSCI Emerging Markets index declined 1.48%, leaving it with a minus 5.48% YTD return. Emerging markets were hurt by the sharp downturn in Russian equities during the week and concerns about slowing global economic growth.

REUTERS/Nicky Loh

Within this environment mutual fund investors were net buyers of equity (+$9.2 billion), taxable fixed income (+$2.2 billion), and municipal bond (+$224 million) fund assets (including conventional funds and exchange-traded funds [ETFs]). Money market funds witnessed net outflows of $3.0 billion for the week.

Equity funds (ex-ETFs) for the twelfth week in a row had positive net flows, with $4.5 billion coming in. Equity ETFs witnessed net inflows (+$4.7 billion) for a fifth consecutive week. Nondomestic equity mutual funds (excluding ETFs) had positive net flows of $2.9 billion, while nondomestic equity ETFs had net inflows of $0.3 billion, following the previous week’s net outflows. Domestic equity funds (ex-ETFs) had positive flows (+$2.2 billion) for a fifth week in a row, while domestic equity ETFs also saw net inflows (+$4.4 billion) for the fifth week. Lipper’s Large-Cap Core Funds classification (-$16 million) had outflows for a fourth consecutive week, while Small-Cap Core Funds (ex-ETFs) (+$101 million) and Mid-Cap Core Funds (ex-ETFs) (+$114 million) witnessed net inflows. Small-Cap Core had had net outflows the previous week, while Mid-Cap Core had its first net inflows in seven weeks. Equity-income funds (ex-ETFs) witnessed outflows (-$130 million) for a sixth consecutive week. Reflecting the positive net flows into equity ETFs during the week, SPDR S&P 500 ETF (SPY) had net inflows of $664 million, while IShares Russell 2000 (IWM) had net inflows of $2.5 billion.

The municipal bond funds macro-group witnessed positive net flows (+$224 million) for a fifth straight week. This was during a week in which Puerto Rico had a well-subscribed $3.5-billion new issue, allowing it additional time to bolster its finances.

Taxable bond funds (including ETFs) had $2.2 billion of net inflows for the week, with the Barclay’s U.S. Aggregate Bond Index declining 0.16%. Modest bond price declines coincided with the positive performance of equities early in the period; however, prices ticked up later on concerns about the pace of global growth and an increased desire to hold safe assets, following geopolitical uncertainty and potential signs of slowing global economic growth. The benchmark ten-year Treasury yield began the week at 2.70% and closed at 2.73%. Taxable bond fund investors appeared to be attracted to the perceived stability of fixed income, following recent global market volatility. Inflation-protected bond funds (including ETFs) had their second consecutive week of positive flows (+217 million). Inflation-protected bond funds had witnessed $34.8 billion of record net outflows during 2013. Core bond funds (excluding ETFs) also had a week of positive net flows, with $429 million entering the segment.

For more information on this week’s Lipper fund flows data, please go to Lipper’s U.S. Fund Flows website or watch the following video: