by Tom Roseen.
For the second week in three investors were net purchasers of fund assets (including those of conventional funds and ETFs), injecting $6.9 billion. Investors padded the coffers of taxable bond funds (+$3.5 billion), equity funds (+$2.9 billion), money market funds (+$464 million), and municipal bond funds (+$44 million). They remained cautiously optimistic ahead of Q3 2017 earnings season after Congress passed a budget resolution early in the fund-flows week—which many viewed as a precursor to tax-reform legislation. Although investors did a little handwringing before the release of the Federal Reserve Board’s FOMC September meeting minutes and the beginning of earnings season later in the flows week, they shrugged off the first monthly decline in nonfarm payrolls since 2010. For the fund-flows week ended October 11, 2017, the NASDAQ Composite Price Only Index gained 1.05%, while the Russell 2000 Price Only Index closed down 0.06%. Despite ongoing geopolitical concerns and the secession standoff between Catalonia and Spain, foreign market indices remained generally positive, with the Shanghai Composite Price Only Index (+2.05%) and the Nikkei 225 Price Only Index (+1.64%) leading the pack.
At the beginning of the fund-flows week the S&P 500 Index notched its sixth straight record close after Congress passed a budget resolution and investors learned that initial jobless claims had fallen for the prior week. However, on Friday the Dow Jones Industrial Average and the S&P 500 snapped their winning streaks with small declines after the Bureau of Labor Statistics reported that September nonfarm payrolls declined by 33,000—their first monthly decline in seven years. But most pundits attributed the decline to Hurricanes Harvey and Irma and believed it to be transitory. With the lack of meaningful economic news and the U.S. bond market being closed in observance of Columbus Day on Monday, markets were directionless as investors anxiously awaited the beginning of the earning seasons later in the week. Nonetheless, the Dow logged its forty-seventh record close on Tuesday as investor optimism appeared to grow ahead of the start of earnings season. All three major indices posted record closes on Wednesday as investors combed through the Fed’s FOMC September meeting minutes, which struck a cautious tone. A few Fed members had suggested that some patience in hiking interest rates might be necessary to assess trends in inflation, which cast some doubt on a December rate hike. Still, according to the CME Group, investors were pricing in an 87% chance of a rate increase by the end of the year.
Exchange-Traded Equity Funds
For the second week in a row equity ETFs witnessed net inflows, taking in a little more than $4.1 billion for the flows week. Authorized participants (APs) were net purchasers of domestic equity ETFs (+$2.3 billion), adding money to the group for the fifth week in six. And for the fifth straight week nondomestic equity ETFs took in net new money, this past week $1.8 billion. iShares Core S&P 500 ETF (+$1.1 billion), iShares Core MSCI EAFE ETF (+$972 million), and Industrial Select Sector SPDR ETF (+$736 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 (-$893 million) experienced the largest individual net redemptions, and Consumer Staples Select Sector SPDR ETF (-$673 million) suffered the second largest net redemptions of the week.
Exchange-Traded Fixed Income Funds
For the fourteenth week running fixed income ETFs attracted net new money, this past week taking in some $1.0 billion. APs padded the coffers of corporate high-yield ETFs (+$847 million) and corporate investment-grade debt ETFs (+$675 million) while turning their backs on flexible ETFs, redeeming $347 million net. iShares iBoxx $High Yield Corporate Bond ETF (+$679 million) and iShares 1-3 Year Treasury Bond ETF (+$228 million) attracted the largest amounts of net new money of all individual fixed income ETFs, while iShares JPM USD Emerging Markets Bond ETF (-$288 million) handed back the largest individual net redemptions for the week.
Conventional Equity Funds
For the twenty-ninth consecutive week conventional fund (ex-ETF) investors were net redeemers of equity funds, redeeming $1.3 billion. Domestic equity funds, handing back a little less than $1.9 billion, witnessed their forty-first week of net outflows while posting a 0.52% return on average. Meanwhile, their nondomestic equity fund counterparts, posting a 0.93% return on average, witnessed net inflows (+$600 million) for the first week in three. On the domestic equity side fund investors shunned large-cap funds (-$1.5 billion net), while on the nondomestic side they were net purchasers of international equity funds (+$911 million).
Conventional Fixed Income Funds
For the fourth consecutive week taxable bond funds (ex-ETFs) witnessed net inflows, taking in $2.4 billion. Fund investors padded the coffers of corporate investment-grade debt funds (+$1.7 billion) and international & global debt funds (+$318 million). Balanced funds (-$49 million) witnessed the largest net redemptions for the week, bettered by corporate high-quality funds (-$26 million). Lipper’s Inflation-Protected Bond Funds classification witnessed its second consecutive week of net inflows (+$72 million this past week) even though some Fed officials appeared slightly more dovish than in past weeks; bank loan funds (-$67 million) witnessed net redemptions for the second week in three. For the second straight week municipal bond funds (ex-ETFs) witnessed net outflows, handing back some $60 million while posting a positive return on average (+0.05%).
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