November 18, 2016

U.S. Fund-Flows Weekly Report: Investors Flock to Equity ETFs After Surprise Election Results

by Patrick Keon.

Thomson Reuters Lipper’s fund macro-groups (including both mutual funds and exchange-traded funds [ETFs]) took in $17.8 billion of net new money for the fund-flows week ended Wednesday, November 16. This overall net inflow was driven by equity funds, which grew their coffers by $23.6 billion, for their third largest weekly net inflows since Lipper began tracking fund-flows data in 1992. Money market funds contributed $3.0 billion to the positive flows, while taxable bond funds (-$5.9 billion net) and municipal bond funds (-$3.0 billion) saw money leave.

The equity markets reaped the benefits as traders repositioned portfolios and strategies in the wake of Donald Trump’s surprise presidential election the preceding week. The Dow Jones Industrial Average closed at a record high in four consecutive trading sessions (peaking at 18,923.06 on November 15) before retreating (-0.29%) during the last trading day of the fund-flows week. For the week the Dow appreciated 1.50% (+278.45 points). It was anticipated that a Trump presidency will lead to a rally in industrial stocks (based on planned infrastructure expenditures) and financial stocks (sparked by a reduction in regulations and an expected increase in bond yields). As evidence, the yield on the U.S. ten-year Treasury note rose to 2.22% from 1.86% for the week after the election.

Equity ETFs (+$27.0 billion) recorded their largest weekly net inflows in history, while equity mutual funds (-$3.4 billion) extended their streak of weekly net outflows to 36. For ETFs the largest individual net inflows belonged to two broad-market products, SPDR S&P 500 ETF (SPY, +$7.2 billion) and iShares Russell 2000 ETF (IWM, +$4.7 billion), and a financial sector offering, Financial Select Sector SPDR (XLF, +$5.2 billion). Nondomestic equity funds (-$3.9 billion) accounted for all of the net outflows for mutual funds.

ETFs (-$3.8 billion) accounted for the majority of the net outflows for the taxable bond fund group, while mutual funds contributed $2.1 billion of losses to the total. The $5.9-billion negative flow that taxable bond funds suffered for the week was the group’s second highest of the year, bettering the net outflows of $7.7 billion for the fund-flows week ended November 2, 2016. Riskier assets once again accounted for the highest net outflows in each group; high-yield mutual funds and ETFs saw their coffers shrink $1.3 billion and $1.0 billion, respectively.

Municipal bond mutual funds (-$2.8 billion) experienced their fourth largest weekly net outflows of all time. Similar to the taxable bond fund group, riskier assets were the hardest hit; the High Yield Muni Debt Funds group saw $1.6 billion leave.

Money market funds took in just over $3.0 billion of net new money for the week. The largest contributors to this increase were funds in Lipper’s Institutional U.S. Government Money Market peer group (+$12.2 billion) as well as the U.S. Government Money Market category (+$5.6 billion), while Institutional U.S. Treasury Money Market Funds balanced that out with a net outflow of over $17.4 billion.

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