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October 21, 2016

U.S. Fund-Flows Weekly Report: Muni Bond Mutual Funds Suffer Net Outflows for the First Time in Over a Year

by Pat Keon, CFA.

Lipper’s fund macro-groups (including both mutual funds and exchange-traded funds [ETFs]) experienced net outflows of $7.7 billion for the fund-flows week ended Wednesday, October 19. Three of the four fund macro-groups saw money leave their coffers: money market funds, equity funds, and municipal bond funds suffered negative flows of $7.7 billion, $3.3 billion, and $136 million, respectively. Taxable bond funds (+$3.4 billion) were the lone group taking in net new money for the week.

The S&P 500 Index broke a two-week losing streak, managing to post a slim 0.24% gain this past week. The index turned the tide toward the end of the trading week, gaining 0.84% over the last two trading days on better-than-anticipated corporate earnings and a rally in energy prices driven by the continuing rebound of oil prices. U.S. crude closed the trading week at a 15-month high, driven by a large drop in domestic crude inventories; it was the sixth week of the last seven in which inventories fell. The corporations posting stronger-than-expected quarterly results that contributed to the late-week market rally included Morgan Stanley, Goldman Sachs, and Netflix.

Municipal bond mutual funds had their streak of 54 straight weeks of net inflows broken; the group saw $27 million net leave. Muni bond funds took in over $54 billion of net new money during the streak, which was the second longest for the group since Lipper began tracking this data in 1992—behind only the 63-week run of positive flows that took place from Q1 2009 to Q1 2010. Lipper’s High Yield Muni Debt Funds classification (-$350 million) had the largest net outflows of the group for the week.

Equity mutual funds witnessed their thirty-second consecutive week of net outflows (-$4.5 billion), while equity ETFs took in $1.1 billion of net new money. The lion’s share of the outflows for mutual funds came from domestic equity funds (-$4.3 billion), with diversified equity funds taking the biggest hit (-$4.0 billion). On the ETF side two broad-market products were responsible for the largest individual net inflows: iShares Russell 2000 ETF (IWM) and iShares Core S&P 500 (IVV) grew their coffers by $1.4 billion and $344 million, respectively.

ETFs (+$2.3 billion) accounted for the majority of the positive flows for taxable bond funds, while mutual funds contributed $1.2 billion to the total net inflows for the group. Core Plus Bond Funds (+$578 million) took in the most net new money on the mutual fund side, while Corporate Debt Funds BBB-Rated (+$643 million), Loan Participation Funds (+$284 million), and Emerging Markets Hard Currency Debt Funds (+$284 million) were the largest contributors on the ETF side.

The overall net outflows from money market funds (-$7.7 billion) continued to be the result of the new money market fund regulations that went live during the week. Institutional Government Money Market Funds had net inflows of almost $15 billion, while Institutional Money Market Funds saw almost $13 billion net leave.

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