by Tom Roseen.
While 75% of the 150 S&P 500 constituents that have reported their Q3 earnings thus far beat their earnings estimates, during the flows week ended Wednesday, October 26, 2016, investors remained wary ahead of the U.S. presidential election, OPEC’s proposed oil production cuts, and the Federal Reserve Board’s possible December interest-rate hike.
At the beginning of the flows week U.S. stocks sagged, despite investors learning that sales of previously owned homes rose sharply in September, while they were weighed down by the news that the dollar had strengthened, that the number of people who applied for first-time unemployment benefits rose 13,000 during the prior week, and that crude oil prices had tanked once again. Nonetheless, on Friday, October 21, the major indices were able to post their first week of plus-side returns in three on better-than-expected earnings reports from the likes of Microsoft and General Electric. Strong earnings reports and M&A news kept that rally on track on Monday after AT&T reportedly reached a deal to acquire Time Warner, T-Mobile reported a better-than-expected profit, and Markit’s purchasing managers’ manufacturing index climbed to 53.2 in October. However, oil prices dropped after Iraq indicated it won’t cut production, capping market gains. A decline in U.S. consumer confidence, another decline in oil prices—this time below the $50/barrel mark, and a lackluster earnings report by Apple added to the downbeat mood at the end of the flows week.
For the first week in four fund investors were net purchasers of fund assets (including those of conventional funds and exchange-traded funds [ETFs]), injecting a net $4.3 billion for the fund-flows week. Investors padded the coffers of money market funds (+$19.8 billion), taxable bond funds (+$0.8 billion), and municipal bond funds (+$0.3 billion) but were net redeemers of equity funds (-$16.6 billion, their largest net redemptions since the week ended September 9, 2015). However, just under $11.7 billion of those equity outflows could be attributed to the liquidation of the Vantagepoint Funds, in which ICMA-RC restructured its proprietary funds to a collective investment trust (CIT) structure.
For the third consecutive week equity ETFs witnessed net inflows, taking in $3.6 billion for the flows week. Authorized participants (APs) were net purchasers of domestic equity ETFs (+$3.0 billion), injecting money into the group for the second consecutive week. Meanwhile, for the third week in a row nondomestic equity ETFs witnessed net inflows, this past week attracting $0.6 billion. PowerShares QQQ Trust 1 (+$1.7 billion), SPDR S&P 500 ETF (+$1.3 billion), and iPath S&P 500 VIX Short-Term Futures ETN (+$0.4 billion) attracted the largest amounts of net new money of all individual equity ETFs. At the other end of the spectrum SPDR Gold ETF (-$1.0 billion) experienced the largest net redemptions, and iShares Russell 2000 ETF (-$0.8 billion) suffered the second largest net redemptions for the week.
For the thirty-third week running conventional fund (ex-ETF) investors were net redeemers of equity funds, redeeming $20.2 billion from the group for the week (their second largest net redemptions on record). However, the restructuring of Vantagepoint Funds to a collective investment trust structure and the merger of Putnam Voyager Fund into Putnam Growth Opportunities Fund (the offsetting inflows will probably be seen this coming week) accounted for, collectively, about $14.8 billion of those net redemptions. Domestic equity funds, handing back a little more than $17.0 billion, witnessed their thirty-eighth consecutive week of net outflows (again influenced significantly by the restructuring and mergers just mentioned). Meanwhile, their nondomestic equity fund counterparts, posting a minus 0.73% return for the week, also witnessed net outflows (-$3.2 billion) for the fifth week running.
For the second consecutive week taxable bond funds (ex-ETFs) witnessed net inflows, taking in a little more than $0.6 billion. Corporate investment-grade debt funds witnessed the largest net inflows of the group, taking in $1.3 billion, while flexible funds witnessed the next largest net inflows (+$0.3 billion). Government-Treasury & mortgage funds experienced the largest net outflows, handing back $658 million for the week, bettered by corporate high-yield funds (-$226 million). In anticipation of a December rate hike, bank loan funds witnessed their eighth consecutive week of net inflows, attracting some $247 million for the week. After crushing their 54-week winning streak during the flows week ended October 19, 2016, municipal bond funds (ex-ETFs) once again witnessed net inflows, this past week to the tune of $256 million.
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