by Tom Roseen.
Investors sat on their hands during the fund-flows week ended October 12, 2016. With Q3 earnings reporting season beginning unofficially with Alcoa’s earnings announcement, with the minutes from the Federal Open Market Committee meeting being released, and with the September nonfarm payrolls report coming out during the flows week, many investors took a wait-and-see approach to investing.
U.S. stocks drooped after the Labor Department reported the U.S. economy added just 156,000 jobs for September, missing analyst expectations of 172,000, while the unemployment rate rose to 5.0% as new workers entered the labor market. Many investors interpreted the jobs report as a “Goldilocks scenario”: growth in new jobs was neither too hot nor too cold, and a resulting measured interest rate hike was likely to come in December. The rather large and rapid decline in the British pound to a fresh 31-year low cast a pall over the market on Friday, October 7, leading the U.S. market to its first weekly decline in four. Despite concerns of another quarter of contracting profits for the upcoming reporting season, investors cheered a jump in oil prices when Khalid al-Falih, Saudi Arabia’s energy minister, said he was optimistic that oil producers can agree to a production cut before year-end. Aluminum giant Alcoa led the U.S. stock market to one of its worst one-day declines in a month as it reported Q3 earnings results that missed expectations. The market was also dragged down by an increase in the dollar and a retreat in oil prices as investors priced in a 68% chance the Fed will hike rates in December. Oil prices, while remaining above $50/barrel, were dragged down by comments from the International Energy Agency that production from OPEC had risen to record highs in September. While the minutes from the Federal Reserve’s policy meeting leaned toward a rate hike relatively soon, they also hinted at a plan to use a slow and measured approach. The expectations for an imminent rate hike lifted the U.S. dollar, weighing on U.S. stocks with international exposure.
For the second week in a row fund investors were net redeemers of fund assets (including those of conventional funds and exchange-traded funds [ETFs]), withdrawing a net $16.0 billion for the fund-flows week. Investors padded the coffers of municipal bond funds (+$0.1 billion) but were net redeemers of money market funds (-$10.6 billion), equity funds (-$3.4 billion), and taxable bond funds (-$2.1 billion).
For the second week in three equity ETFs witnessed net inflows, taking in however only a little over $136 million for the flows week. Authorized participants (APs) were net redeemers of domestic equity ETFs (-$0.8 billion), withdrawing money from the group for the second consecutive week. Meanwhile, for the first week in five nondomestic equity ETFs witnessed net inflows, this past week attracting $1.0 billion. iShares Core MSCI EAFE ETF (+$626 million), iShares Core S&P Total U.S. Stock Market ETF (+$488 million), and SPDR Gold ETF (+$455 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 (-$1.8 billion) experienced the largest net redemptions, and iShares Edge MSCI Minimum Volatility USA ETF (-$0.7 billion) suffered the second largest net redemptions for the week.
For the thirty-first week running conventional fund (ex-ETF) investors were net redeemers of equity funds, redeeming $3.5 billion from the group for the week. Domestic equity funds, handing back a little more than $3.1 billion, witnessed their thirty-sixth consecutive week of net outflows while posting a weekly return of minus 1.23%. Meanwhile, their nondomestic equity fund counterparts, posting a minus 1.98% return for the week, also witnessed net outflows (-$0.4 billion) for the third week in a row. On the domestic side investors once again lightened up on large-cap funds, redeeming a net $2.3 billion. On the nondomestic side international equity funds witnessed $0.6 billion of net outflows.
For the first week in four taxable bond funds (ex-ETFs) witnessed net outflows, handing back a little more than $3.0 billion. Flexible portfolio funds witnessed the largest net outflows of the group, handing back $1.5 billion, while corporate investment-grade debt funds suffered the next largest net redemptions (-$1.0 billion). International & global debt funds attracted the largest net inflows, taking in $194 million for the week, while both government/Treasury and mortgage funds (+$39 million) and government mortgage funds (+$31 million) were also net attractors of investor assets. As a result of the release of the Fed’s September minutes, supporting a near-term rate hike, bank loan funds witnessed their sixth consecutive week of net inflows, attracting some $213 million for the week. Keeping their recent winning streak alive, for the fifty-fourth consecutive week municipal bond funds (ex-ETFs) witnessed net inflows, but only to the tune of $9 million, after posting a negative return (-0.45% for the current week) for their fifth week in six.