by Tom Roseen.
Despite the Dow Jones Industrial Average and S&P 500 Composite Index managing to stay in the black for April, markets struggled during the fund-flows week ended May 4, 2016, as a slide in oil prices, weaker-than-expected earnings reports, and softening economic data placed a pall over investors.
During the week the Dow posted is worst one-day decline in over two months after investors learned that the Bank of Japan had kept its key lending rate unchanged and that the U.S. gross domestic product had grown during Q1 2016 at its slowest rate in two years. And even though the number of Americans who filed for unemployment benefits during the week remained near a four-year low and the PCE price index showed price pressures had declined in March, weaker-than-expected earnings from bellwethers Apple and Intel weighed on investor psyche. Though in the middle of the flows week stocks got a small boost in performance, led by consumer discretionary and financial stocks, along with the ISM Manufacturing Index remaining in expansion territory and March construction spending being on the rise, it wasn’t enough. Stocks once again tumbled, and the CBOE volatility index jumped above 15 after global growth concerns resurfaced on weaker-than-expected manufacturing data in China and the Reserve Bank of Australia instituting a surprise interest rate cut. Stocks ended the flows week on a sour note when the April ADP employment numbers came in at 156,000, short of analyst expectations of 200,000.
For the week fund investors were net redeemers of fund assets (including those of conventional funds and exchange-traded funds [ETFs]), pulling out a net $2.8 billion for the fund-flows week ended Wednesday, May 4. While investors were net sellers of equity funds (-$11.2 billion, the largest weekly net redemptions since January 6, 2016), they padded the coffers of money market funds (+$6.5 billion), taxable bond funds (+$1.1 billion), and municipal bond funds (+$0.7 billion).
For the third week in four equity ETFs witnessed net outflows, handing back $10.2 billion. As a result of the general malaise witnessed in the equity markets during the week, authorized participants (APs) were net redeemers of domestic equity ETFs (-$9.9 billion), withdrawing money from the group for the second week in three. And as a result of lackluster economic data both in the U.S. and abroad, APs—for a third week in four—were also net redeemers of nondomestic equity ETFs (-$0.3 billion). SPDR Gold ETF (+$944 million), iShares MSCI Emerging Markets ETF (+$403 million), and iShares Gold Trust (+$301 million) attracted the largest amounts of net new money of all individual equity ETFs. At the other end of the spectrum SPDR S&P 500 ETF (-$6.3 billion) experienced the largest net redemptions, while PowerShares QQQ Trust 1 (-$2.5 billion, its second largest weekly redemptions on record—only the week ended January 9, 2008, was worse) suffered the second largest redemptions for the week.
For the eighth week running conventional fund (ex-ETF) investors were net redeemers of equity funds, redeeming $1.0 billion from the group. Domestic equity funds, handing back $1.9 billion, witnessed their thirteenth consecutive week of net outflows and posted a weekly loss of 2.43%. Meanwhile, their nondomestic equity fund counterparts, posting a 2.72% loss for the week, witnessed net inflows (+$942 million) for the first week in four. On the domestic side investors lightened up on large-cap funds, redeeming a net $2.1 billion. On the nondomestic side international equity funds witnessed $1.1 billion of net inflows.
For the fifth week in a row taxable bond funds (ex-ETFs) witnessed net inflows, taking in a little under $1.7 billion. Corporate investment-grade bond funds witnessed the largest net inflows, taking in $1.5 billion (for their fifth week in a row of net inflows), while balanced funds witnessed the second largest net inflows (+$245 million) of the macro-group. Flexible portfolio funds and government/Treasury funds witnessed the only net redemptions of the group, handing back $297 million and $123 million, respectively, for the week. For the thirty-first week in a row municipal bond funds (ex-ETFs) witnessed net inflows, taking in $607 million this past week.
For more information on this week’s Lipper fund flows data, please refer to Lipper’s U.S. Fund Flows website.