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September 1, 2017

U.S. Weekly FundFlows Insight Report: Despite Increased Volatility During the Week, Investors Return to Equity Funds

by Tom Roseen.

For the first week in six investors were net redeemers of fund assets (including those of conventional funds and ETFs), withdrawing $11.3 billion. Once again, though, the headline numbers were slightly misleading. While investors padded the coffers of equity funds (+$6.1 billion), taxable bond funds (+$2.1 billion), and municipal bond funds (+$345 million) for the week, they were net redeemers of money market funds (-$19.9 billion). During a low-volume, quasi-volatile trading week investors pushed the major indices up. For the fund-flows week ended Wednesday, August 30, 2017, the Russell 2000 Price Only Index and the NASDAQ Composite Price Only Index gained 1.58% and 1.43%, respectively, despite investors’ worries. Investors were confronted by the devastation of Hurricane Harvey, North Korea’s launching another ballistic missile, a drop in July new orders for durable goods, and oil prices declining. But they appeared to cheer news that President Donald Trump would begin pushing his tax reform agenda; the continuation of business as usual after no substantial news came from the Federal Reserve Board’s annual symposium of central bankers in Jackson Hole, Wyoming; and GDP growth being revised to 3.0% for Q2 2017.

Market Wrap-Up

At the beginning of the fund-flows week U.S. stocks closed slightly lower as investors turned their attention to the Fed’s Jackson Hole symposium, looking for clues of when the Fed might raise rates and on the timing of the unwinding its portfolio, while keeping a wary eye on Hurricane Harvey as it bore down on the Gulf of Mexico. On Friday, August 25, markets perked up despite investors’ learning that July new durable goods orders declined 6.8%, as speakers at the Fed symposium offered few clues about future monetary policy, and as near-month gold prices spiked to their highest level since early June. Although insurance issues took a beating on the following Monday as investors evaluated flood damage in Texas and as oil prices continued to spiral, markets closed little changed on the day. As safe-haven instruments came into play after a North Korean missile test over Japanese airspace, investors appeared to applaud Trump’s measured reaction and news that consumer confidence had strengthened in August. On Wednesday the S&P 500 closed up for its fourth day in a row after Q2 GDP growth was revised to 3.0% and as ADP estimated that for August private-sector employers added 237,000 jobs, outpacing analyst expectations of 185,000.

Exchange-Traded Equity Funds

For the first week in three equity ETFs witnessed net inflows, taking in a little more than $9.2 billion for the flows week. Authorized participants (APs) were net purchasers of domestic equity ETFs (+$7.6 billion), injecting money into the group for the first week in three. And for the second week in a row nondomestic equity ETFs witnessed net inflows, this past week taking in $1.7 billion. SPDR S&P 500 ETF (+$3.8 billion), SPDR Gold ETF (+$721 million), and iShares Russell 2000 ETF (+$656 million) attracted the largest amounts of net new money of all individual equity ETFs. At the other end of the spectrum SPDR Dow Jones Industrial Average ETF (-$668 million) experienced the largest individual net redemptions, and JPMorgan Alerian MLP ETN (-$308 million) suffered the second largest net redemptions for the week.

Exchange-Traded Fixed Income Funds

For the eighth week running fixed income ETFs attracted net new money, this past week attracting some $1.8 billion. APs padded the coffers of flexible portfolio ETFs (+$684 million) and corporate high-yield ETFs (+$523 million) while turning their backs on corporate investment-grade debt ETFs, redeeming $65 million net. SPDR Bloomberg Barclays High Yield ETF (+$537 million) and iShares Floating Rate Bond ETF (+$137 million) attracted the largest amounts of net new money of all individual fixed income ETFs, while iShares iBoxx $ Investment Grade Corporate Bond ETF (-$411 million) handed back the largest individual net redemptions for the week.

Conventional Equity Funds

For the tenth consecutive week conventional fund (ex-ETF) investors were net redeemers of equity funds, redeeming $3.1 billion. Domestic equity funds, handing back a little more than $3.6 billion, witnessed their thirty-fifth week of net outflows while posting a 0.67% return on average for the flows week. Meanwhile, their nondomestic equity fund counterparts, posting a 0.32% return on average, witnessed net inflows (+$539 million) for the second week in row. On the domestic equity side fund investors shunned large-cap funds (-$1.9 billion net) and small-cap funds (-$563 million net), while on the nondomestic side they were net purchasers of international equity funds (+$701 million).

Conventional Fixed Income Funds

For the second week in three taxable bond funds (ex-ETFs) witnessed net inflows, attracting $323 million. Corporate investment-grade debt funds took in the largest net inflows of the group, some $1.4 billion (for a thirteenth consecutive week of net inflows). Corporate high-yield funds (-$800 million) witnessed the largest net redemptions for the week, bettered by balanced funds (-$226 million). Our Lipper’s Inflation-Protected Bond Funds classification witnessed its second consecutive week of net outflows (-$124 million this past week) on the Fed’s lack of comments during its Jackson Hole symposium, and bank loan funds (-$246 million) witnessed net redemptions for the second consecutive week. For the seventh consecutive week municipal bond funds (ex-ETFs) witnessed net inflows, taking in some $264 million, posting a plus-side return on average (+0.14%) for the flows week.

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