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February 22, 2016

Thomson Reuters Lipper Weekly U.S. Fund Flows Report – February 17, 2016

by Pat Keon, CFA.

U.S. Fund Flows: The Equity Market Rebound Does Not Convince Mutual Fund Investors

Lipper’s fund macro-groups (including both mutual funds and exchange-traded funds [ETFs]) experienced net outflows of over $3.2 billion during the fund-flows week ended Wednesday, February 17. Equity funds were responsible for all of these net outflows; they saw $5.7 billion leave their coffers. The rest of the groups all posted net inflows for the week, paced by money market funds (+$1.7 billion). Municipal bond funds and taxable bond funds contributed $669 million and $109 million, respectively.

The equity markets may have found their bottom during the week. After five straight losing trading sessions and closing at its lowest level in two years (1,829.08), the S&P 500 Index rebounded to gain 5.3% over the last three trading days of the week. This boost reduced the index’s year to date loss to 5.6%.

U.S. stocks gained strength from better-than-anticipated economic news, coupled with news about the minutes from the Federal Reserve’s January policy meeting. Several items on the data front that helped the market for the week: (1) the cost of producing goods and services rose 0.1% for January, bettering the forecast of a 0.2% dip; (2) a 0.2% increase in retail sales (once again beating forecasts) pointed to consumer confidence starting to grow; and (3) U.S. industrial production increased 0.9% for January (the largest gain in 14 months), indicating the economy is continuing to recover. The release of the Fed’s minutes added steam to the market’s turnaround; the minutes indicated the Fed was leaning toward a temporary pause on its money-tightening policies because of the recent global market turmoil.

Mutual funds (-$3.5 billion) accounted for the majority of the net outflows from equity funds for the week, while ETFs contributed $2.2 billion of net outflows to the total. Domestic equity funds (-$3.6 billion) were once again the main contributor to the outflows on the mutual fund side, while nondomestic equity funds were able to scrape together $144 million of net inflows. The largest net outflows among individual ETFs belonged to PowerShares QQQ (QQQ, -$584 million) and iShares Russell 2000 (IWM, -$413 million).

It was a tale of two cities for taxable bond funds: mutual funds saw $2.3 billion net leave, while ETFs took in $2.4 billion of net new money. For mutual funds lower-quality issues once again paced the outflows as funds in Lipper’s Loan Participation Funds (-$604 million) and High Yield Funds (-$190 million) classifications had significant net outflows. On the ETFs side iShares iBoxx High Yield Corporate (HYG, +$392 million) and iShares iBoxx Investment Grade Corporate (LQD, +$383 million) had the two largest net inflows.

Municipal bond mutual funds (+$578 million) experienced their twentieth consecutive week of net inflows. Muni bond funds took in over $10 billion of net new money during this streak. Funds in the General Muni Debt Funds (+$193 million) and Intermediate Muni Debt Funds (+$180 million) categories posted the largest net inflows for the past week.

The net inflows into money market funds (+$1.7 billion) were the first positive flows in three weeks for the group. Institutional U.S. Treasury money market funds were the largest contributors to the net inflows as they grew their coffers by over $5.6 billion.

For more information on this week’s Lipper fund flows data, please visit here.

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