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June 20, 2014

$23.5 BILLION EXIT FUNDS TO REVERSE THREE-WEEK STREAK

by Lipper Alpha Insight.

The Dow Jones Industrial Average bounced back from a triple-digit loss on Thursday, June 12 to post a gain of 0.4% (62.74 points) and close at 16,906.62 for the fund-flows week ended Wednesday, June 18.

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The Federal Open Market Committee’s policy statement and ensuing press conference by Fed Chairwoman Janet Yellen was the highlight of the week’s economic news. This policy statement was very similar to the previous one; the Fed announced as expected that it will continue tapering, cutting another $10 billion from the quantitative-easing program to reduce monthly bond purchases to $35 billion. At its current pace, the Fed will be done with the quantitative-easing program by fourth quarter 2014, which prompted the market to start speculating as to when the Fed will begin to raise interest rates. Yellen addressed this in her press conference, stating there could be “considerable time” between when the bond taper ends and rate hikes begin. She said the Fed is not concerned about the stock market’s run to record highs, and the Fed will look at a “wide range of indicators” on the labor market before deciding to raise rates. These comments were in stark contrast to her March press conference when she stated it was possible the Fed could start raising rates six months after quantitative-easing ends.

Overall, the week’s trading activity resulted in $23.5 billion of net outflows from funds, which broke a streak of three consecutive weeks of net inflows. Accounting for the lion’s share of these net outflows were money market funds, which had $28.1 billion leave their coffers, marking their sixth consecutive week of net outflows.

Taxable bond funds (-$920 million net) broke a streak of 14 consecutive weeks of net inflows. Taxable bond mutual funds had $2.6 billion of positive flows, while taxable bond exchange-traded funds (ETFs) saw $3.5 billion leave the group. Mutual funds in Lipper’s Core Bond and Core Bond Plus classifications brought in over $600 million net for the week. ETF investors sold off iShares 7-10 Year Treasury Bond (IEF, -$2.9 billion) and ProShares Ultra 7-10 Year Treasury (UST, -$701 million).

Equity funds grew their coffers by $5.3 billion net for the week. The majority of the positive flows came from equity ETFs (+$5.2 billion), while mutual funds contributed $126 million to the total. SPDR S&P 500 (SPY, +$2.4 billion) and iShares Core S&P Mid-Cap (IJH, +$1.4 billion) took in the largest chunks on the ETF side. The positive net flows for equity mutual funds marked their twenty-fourth consecutive week on the plus side.

Municipal bond funds had their seventh consecutive week of net inflows (+$148 million this past week). The majority of the net inflows came from the mutual fund side (+$117 million), while municipal bond ETFs had positive net flows of $31 million.

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

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