Wary Fund Investors Remain Engaged but Inject Only a Net $1.3 Billion Into Conventional Funds for July

For the third month in a row investors were net purchasers of fund assets but injected only $1.3 billion into the conventional funds business (excluding ETFs) for July. Wary fund investors shrugged off stronger-than-expected Q2 earnings reports and U.S. economic data, and instead focused on late-month discouraging Q3 guidance, implications of a Malaysia Airlines jet crash in Ukraine, Israel’s invasion of Gaza, and Argentina’s selective default. At the beginning of the month investors cheered a strong labor report, with June’s nonfarm payrolls report easily beating analyst expectations as the economy added 288,000. The equity markets continued to rally during the month as investors warmed to better-than-expected earnings announcements and M&A deals. However, for the week ended Friday, July 25, U.S. stocks witnessed their largest weekly loss in six.

REUTERS/Gleb Granich

With market uncertainty on the rise, increasing geopolitical tensions  ever-present, and new worries that the Federal Reserve may start raising interest rates earlier than originally thought, the Dow Jones Industrial Average slid 300 points on the last day of the month to its biggest one-day loss in the last six months, placing a pall over the market.

Money market funds—for the second consecutive month—suffered net redemptions, handing back $16.5 billion for July. Mutual fund investors injected a net $13.4 billion into fixed income funds (for their seventh consecutive month of net inflows). For the nineteenth consecutive month investors remained net purchasers of stock & mixed-asset funds, depositing a net $4.4 billion for July (the smallest amount for the 19 months).

Once again Mixed-Asset Funds (+$8.5 billion) attracted for the month the largest amount of net new money of Lipper’s five equity macro-classifications. For the fourth consecutive month USDE Funds suffered the only net redemptions (-$14.1 billion for July) of the five broad groups.

In contrast to retail investors’ risk-off mindset toward month-end authorized participants (APs)  in July increased their exposure to equity ETFs as the economy and Q2 earnings reports remained fairly strong. APs injected a net $17.1 billion into equity ETFs, while adding assets to bond ETFs to the tune of just $0.5 billion. The ETF universe witnessed its sixth consecutive month of net inflows, taking in $17.7 billion for July.

Despite continued concerns about Russia and Ukraine, escalating violence in Israel, a lower-than-expected German Ifo business indicator, and selective default on Argentina’s sovereign bonds, only the Sector Equity ETFs macro-classification witnessed net redemptions (-$0.7 billion for July) of Lipper’s five broad-based groups. For the second consecutive month USDE ETFs (+$11.5 billion for July) witnessed the strongest net inflows of the five equity-related macro-classifications. Following USDE ETFs were World Equity ETFs (+$5.8 billion), Alternatives ETFs (+$0.4 billion), and Mixed-Asset ETFs (+$0.2 billion).

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