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August 1, 2014

Fund flows are positive, despite the lackluster market; equity ETFs (+7.9 billion) see largest net inflows since February

by Lipper Alpha Insight.

For the fund flows week ended July 30, 2014, the news of mostly positive quarterly corporate earnings and employment reports was tempered by mixed new-housing-sales data, geopolitical uncertainty as economic sanctions were imposed upon Russia, and cautious investor sentiment about current valuation levels and the upcoming release of the GDP report on Wednesday. The GDP report indicated stronger-than-anticipated levels of domestic economic growth at 4%, which helped reassure some stock investors. However, the Federal Reserve’s statement later in the day gave others pause because of its mixed outlook for labor markets and inflation. The S&P 500 rose slightly (+0.02%) on Wednesday, but it fell 0.83% for the week, putting its year-to-date gain at 7.81%. The NASDAQ declined 0.23% for the week, putting its 2014 return so far at 6.86%. Small-cap stocks continued to lag, with the Russell 2000 returning minus 0.96% for the week. The year-to-date return for the Russell 2000 stood at minus 0.77%.

Investors were net buyers (+$7.6 billion) of equity fund assets (including conventional funds and exchange-traded funds [ETFs]) for the week. Taxable bond funds (including ETFs) saw net inflows of $1.2 billion. Money market funds witnessed net outflows of $3.6 billion for the week, and municipal bond funds gained $419 million net.

Nikola Solic

Nikola Solic

Equity funds (ex-ETFs) had net outflows (-$302 million), following the previous week’s inflows of $379 million. Equity ETFs, however, witnessed their largest net inflows (+$7.9 billion) since the week ended February 19, 2014. Nondomestic equity mutual funds (excluding ETFs) had positive net flows (+$887 million), while nondomestic equity ETFs also had net inflows (+$1.3 billion) for the fifth week in a row. Domestic equity funds (ex-ETFs) had negative flows (-$1.2 billion) for the third week in a row, while domestic equity ETFs saw net inflows (+$6.6 billion) that were their largest since the week ended March 5, 2014.

Lipper’s Large-Cap Growth Funds classification (excluding ETFs) had its fourteenth consecutive week of net outflows (-$214 million). Large-Cap Value Funds also had a week of negative flows (-$658 million), following the prior week’s positive net flows of $433 million. Emerging Markets Funds experienced positive net flows (+$293 million), reversing the previous week’s modest net outflows (-$45 million). The Real Estate Funds classification (excluding ETFs) experienced its eighteenth consecutive week of net inflows (+$46 million); this asset class continues to remain attractive to income-seeking investors.

Reflecting the net inflows into equity ETFs during the week, SPDR S&P 500 ETF (SPY) had net positive flows of $7.4 billion–its largest weekly inflows since the week ended September 14, 2011. IShares MSCI Emerging Markets (EEM) alsohad net inflows (+$602 million), while Powershares QQQ Trust 1 (QQQ) had positive net flows of $237 million.

The municipal bond funds macro-group’s (including ETFs) net inflows of $419 million (witnessing inflows for a third consecutive week) were down from the previous week’s inflows of $686 million.

Taxable bond funds (including ETFs) had $1.2 billion of net inflows for the week, with the Barclay’s U.S. Aggregate Bond Index declining 0.37%. (The index has now risen 3.68% so far for 2014.) The bond market experienced losses during the week as the employment picture appeared to brighten; however, muted inflation data, a lackluster July manufacturing report, and concerns about soft global economic growth rates helped mitigate the declines until Wednesday. Most of the bond price losses during the week coincided with the release of a robust domestic GDP growth figure on Wednesday. The benchmark ten-year Treasury yield began the week at 2.48% and ended it at 2.57%.

Taxable bond fund investors were net buyers of fixed income assets as some investors favored this safe-haven asset class. But loan participation funds including ETFs (-$406 million) witnessed their third consecutive week of net outflows. High-yield funds also saw net outflows (-$1.5 billion) for the third consecutive week as investors appeared concerned about valuations in the corporate bond non-investment-grade segment. Core bond funds had their third week of positive net flows, with $109 million entering the segment for the week.

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

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