by Tom Roseen.
Markets took a rollercoaster ride during President Donald Trump’s inauguration week; many investors were searching for clarity on his legislative priorities and pro-business policy initiatives and preferred to sit on the sidelines. However, strong earnings reports later in the fund-flows week from the likes of Boeing and DuPont pushed the Dow Jones Industrial Average above 20,000, to close at 20,068.51 on Wednesday, January 25, as investors became more optimistic about the economy. 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 $16.9 billion for the fund-flows week ended January 25, 2017. However, the headline numbers might have been a little misleading. While investors padded the coffers of money market funds (+$19.8 billion), taxable bond funds (+$2.8 billion), and municipal bond funds (+$7 million), they were net redeemers of equity funds (-$5.7 billion).
On Thursday, January 19, investors were reluctant to make any major bets in the market ahead of Trump’s inauguration. While they cheered the unexpected decline in the prior week’s weekly jobless claims, the dovish comments by European Central Bank President Mario Draghi, and news that output by members of OPEC fell last month, they focused on the uncertainties surrounding the Trump presidency and the strengthening dollar. On Friday the markets closed the day higher on news that oil jumped 2.0% for the day and that China had chalked up better-than-expected economic growth at the end of 2016; however, the Dow and the S&P 500 Index suffered a second consecutive week of declines.
While 74% of the companies that have reported Q4 2016 earnings thus far have beaten their earnings estimates, investors remained concerned about the strengthening dollar and its possible impact on future corporate earnings, weighing on the markets on Monday. However, a strong round of corporate earnings report on Tuesday improved investor sentiment and set up a strong rally in equities for the remainder of the fund-flows week, with the Dow and the S&P closing at record highs on Wednesday, January 25.
For the second consecutive week equity ETFs witnessed net outflows, handing back just a little over $1.3 billion for the flows week. Authorized participants (APs) were net redeemers of domestic equity ETFs (-$4.4 billion), removing money from the group for the second week in a row. Meanwhile, for the fifth week running nondomestic equity ETFs witnessed net inflows, this past week attracting $3.1 billion. iShares Core MSCI EAFE ETF (+$948 million), Technology Select Sector SPDR ETF (+$897 million), and iShares Core MSCI Emerging Markets ETF (+$510 million) attracted the largest amounts of net new money of all individual equity ETFs. At the other end of the spectrum PowerShares QQQ Trust 1 (-$2.1 billion) experienced the largest individual net redemptions, and SPDR S&P 500 ETF (-$2.0 billion) suffered the second largest net redemptions for the week.
For the fourth consecutive week conventional fund (ex-ETF) investors were net redeemers of equity funds, redeeming $4.4 billion. Domestic equity funds, handing back a little less than $4.2 billion, witnessed their fourth week of net outflows, but they posted a 1.42% gain on average for the flows week. Meanwhile, their nondomestic equity fund counterparts, posting a 1.93% return on average for the week, witnessed net outflows (-$213 million) for the first week in three. On the domestic equity side fund investors continued to lighten up on large-cap funds (-$3.4 billion net), while on the nondomestic side they shunned global equity funds (-$0.4 billion).
For the fourth week in a row taxable bond funds (ex-ETFs) witnessed net inflows, attracting $462 million net. Corporate high-yield funds witnessed the largest net outflows of the group, handing back $365 million, while flexible portfolio funds witnessed the next largest net outflows (-$301 million). Corporate investment-grade debt funds experienced the largest net inflows, taking in slightly less than $1.0 billion for the week. With the Federal Open Market Committee’s continued hawkish tone, it wasn’t too surprising to see Lipper’s Treasury Inflation-Protected Bond Funds classification taking in money for the twelfth consecutive week (+$80 million) and bank loan funds witnessing their eleventh week of net inflows, attracting some $778 million for the week. For the third consecutive week municipal bond funds (ex-ETFs) witnessed net inflows, this past week taking in $154 million.
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