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August 5, 2016

U.S. Fund-Flows Report: Mutual Fund Investors Continue to Flee from Equity Funds

by Pat Keon, CFA.

Lipper’s fund macro-groups (including both mutual funds and exchange-traded funds [ETFs]) took in just over $900 million of net new money for the fund-flows week ended Wednesday, August 3. Money market funds (+$3.8 billion) and municipal bond funds (+$784 million) accounted for all of the net inflows, while equity funds (-$3.6 billion) and taxable bond funds (-$96 million) saw money leave.

The S&P 500 Index lost ground for the second consecutive week, losing 0.1% for the fund-flows week ended Wednesday, August 3, after retreating 0.6% the week before. Disappointing economic data and a slump in oil prices combined to hold down the performance of the broad-based equity markets during the week. The U.S. economy grew at an annual rate of 1.2% during second quarter 2016, far below the forecasted 2.6% growth rate. The Federal Reserve announced again during the week that it is still seeking to raise interest rates before the end of the year, but if these sluggish economic expansion numbers continue they may sink those plans. After peaking at $51.23/barrel in June the price of crude oil continued to slide. Oil dipped below $40 this past mid-week, a decrease of over 20% from its recent high, before rebounding on the last trading day of the week to close at $41.07.

Equity mutual funds (-$4.4 billion) suffered their twenty-first consecutive week of net outflows, while equity ETFs managed to post a positive net flow of $756 million. On the mutual fund side of the ledger U.S. diversified equity funds were the hardest hit as funds in Lipper’s Large-Cap Growth Funds and Large-Cap Core Funds classifications each saw $1.1 billion leave. For ETFs Powershares QQQ (QQQ, +$1.1 billion) and SPDR Gold (GLD, +$687 million) recorded the two largest net inflows.

For taxable bond funds the outflows came from ETFs (-$2.2 billion net), while mutual funds brought in $2.1 billion of new money. Core Plus Bond Funds (+$1.6 billion) and Core Bond Funds (+$669 million) had the largest net inflows for mutual funds, while below-investment-grade ETFs experienced major net outflows. iShares iBoxx $High Yield (HYG, -$1.5 billion) and SPDR Barclays High Yield Bond (JNK, -$687 million) had the two largest negative flows for taxable bond ETFs.

It was the forty-fourth consecutive week of net inflows (+$707 million) for municipal bond mutual funds. Funds in the High Yield Muni Debt Funds (+$213 million) and General and Insured Muni Debt Funds (+$142 million) categories were the largest contributors to the positive flows. For the year-to-date period muni bond funds grew their coffers $34.5 billion.

The $3.8-billion net inflows into money market funds reduced their overall year-to-date net outflows to $62.5 billion. The main contributor to this past week’s positive flows were funds in the Institutional U.S. Government Money Market Funds category (+$20.8 billion), while Institutional U.S. Treasury Money Market Funds had the largest net outflows (-$12.6 billion).

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