by Tom Roseen.
And the Beat Goes On . . .
Investors continued to duck for cover during the fund-flows week ended February 10, 2016, upon hearing disappointing market and economic news throughout the week. On Thursday, February 4, markets managed to eke out small gains despite a worse-than-expected preliminary nonfarm productivity report and a rise in initial jobless claims for the previous week. From that point on, however, it was all downhill. On Friday the markets were hammered by a disappointing nonfarm payrolls report that showed the U.S. economy added 158,000 jobs for January, missing analyst expectations of 190,000 and sending stocks to their worst weekly loss in a month. However, wage growth and the unemployment rate (4.9%) showed improvement. The weakness in the headline employment numbers weighed heavily on growth-oriented plays and information-technology issues. Gold, on the other hand, scored its highest weekly finish since August.
On Monday, February 8, stocks followed oil prices lower on continued fears over the glut in world oil supplies. With global market weakness ever-present and some Fed watchers believing the Federal Open Market Committee might back off its rate increases, the banking sector took the brunt of the downturn, with SPDR Financial Select Sector ETF declining 14.53% year to date through Monday. On Tuesday oil continued its retreat, and with it went stock prices. Investors began looking to Federal Reserve Chair Janet Yellen’s semi-annual testimony to Congress during the week to glean her thoughts on future interest rate increases. The market had begun pricing out future rate hikes in 2016.
Reports of a third consecutive month of declines in U.S. wholesalers’ inventories showed firms were anticipating softer sales in the near future. By Wednesday the major indices witnessed their longest losing stretch in months, with the Dow Jones Industrial Average posting its fourth straight day of declines when Yellen didn’t shut down the possibility of rate increases in 2016. Oil futures settled the day down at $27.45/barrel.
As might be expected, given the increase in risk aversion, investors were net redeemers of fund assets (including those of conventional funds and exchange-traded funds [ETFs]), withdrawing a net $3.0 billion for the fund-flows week ended February 10. The increase in recent market volatility pushed investors toward safe-haven plays and fixed income securities, with investors padding the coffers of taxable bond funds (+$1.6 billion net) and municipal bond funds (+$0.9 billion net), while being net redeemers of equity funds (-$1.5 billion) and money market funds (-$4.1 billion).
For the second week in a row equity ETFs witnessed net outflows; however, this past week they handed back just $100 million. Despite global growth concerns and a continued slide in oil prices, authorized participants (APs) were net purchasers of domestic equity ETFs (+$1.0 billion), injecting money into the group for the second week in three. With the global markets taking it on the chin during the week, especially in the banking sector, APs—for the fourth week in five—were net redeemers of nondomestic equity ETFs (-$1.1 billion). Perhaps as a result of some better-than-expected earnings news from U.S. firms and in anticipation of bottom shopping, APs kept their attention on some big-name ETFs, with SPDR S&P 500 ETF (+$3.1 billion), SPDR Dow Jones Industrial ETF (+$0.9 billion), and iShares MSCI USA Minimum Volatility ETF (+$0.5 billion) attracting the largest amounts of net new money of all individual equity ETFs. At the other end of the spectrum First Trust NYSE Arca Biotech ETF (-$833 million) experienced the largest net redemptions, while SDPR Financial Select Sector ETF (-$826 million) suffered the second largest redemptions for the week. For the ninth week in a row APs padded the coffers of government/Treasury funds, injecting $1.4 billion for the week.
Once again, for the fifth week in six, conventional fund (ex-ETF) investors were net redeemers of equity funds, redeeming $1.4 billion from the group. Domestic equity funds, handing back $3.1 billion, witnessed their thirteenth week in 14 of net outflows, while posting a weekly loss of 3.77%. Meanwhile, their nondomestic equity fund counterparts, posting a 3.25% negative return for the week, witnessed net inflows (+$1.7 billion) for the second consecutive week. On the domestic side investors lightened up on large-cap funds and mid-cap funds, redeeming a net $2.4 billion and $0.7 billion, respectively, for the week. On the nondomestic side global equity funds witnessed just $53 million of net inflows, while international equity funds attracted some $1.7 billion.
For the first week in 14 taxable bond funds (ex-ETFs) witnessed net inflows, taking in a little under $0.4 billion for the week. Government/mortgage funds witnessed the largest net inflows for the week, taking in $0.6 billion (for their fifth consecutive week of net inflows), while government-Treasury & mortgage funds witnessed the second largest net inflows (+$0.5 billion). Despite the Fed’s leaving the door open for a March rate hike, bank rate funds—handing back some $0.4 billion for the week—experienced their twenty-ninth consecutive week of net outflows. Becoming more risk averse during the week, investors were net redeemers of corporate high-yield funds (-$322 million), government/Treasury funds (-$200 million), and corporate investment-grade debt funds (-$153 million) for the week. For the nineteenth week in a row municipal bond funds (ex-ETFs) witnessed net inflows, taking in $816 million this past week.
For more information on this week’s Lipper fund flows data, please visit here.