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January 4, 2018

U.S. Weekly FundFlows Insight Report: Despite a Good Beginning to 2018, Fund Investors Are Net Redeemers for the Week

by Tom Roseen.

Despite a rather good start for equities in 2018, for the second week in three investors were net sellers of fund assets (including those of conventional funds and ETFs), withdrawing $12.3 billion. Fund investors padded the coffers of taxable bond funds (+$3.3 billion) but were net redeemers of equity funds (-$8.4 billion), money market funds (-$7.1 billion), and municipal bond funds (-$48 million) for the week.

Coming off a New Year’s holiday-shortened trading week, equity investors kept the pedal to the metal for the fund-flows week ended January 3, 2018. While the last trading day of 2017 ended with a whimper as U.S. stocks fell in the final minutes of a thinly traded session, investors continued to embrace the economic environment that remained good for stocks, pushing the S&P 500 Index and the NASDAQ Composite to two consecutive closing highs in the first two trading days of 2018. However, during the fund-flows week investors were faced with a new round of geopolitical concerns and disagreement among Federal Reserve Board policymakers about the pace and number of interest rate hikes this year. For the fund-flows week the Dow Jones Industrial Average Price Only Index, the S&P 500 Price Only Index, and the NASDAQ Composite Price Only Index closed up 0.60%, 1.13%, and 1.82%, respectively.

Market Wrap-Up

On Thursday, December 28, 2017, the Dow logged its seventy-first record close after energy stocks got a boost as near-month crude oil prices pivoted higher on news that crude oil inventories were on a decline and after investors turned their attention to the possibility that Donald Trump’s administration will begin to focus on the $1-trillion infrastructure spending bill now that the Tax Cuts and Jobs Act was signed into law. With little incentive for investors to put more risk on ahead of the three-day New Year’s holiday weekend, the markets did a little backsliding on Friday; however, crude oil prices rose to their highest close (above $60/barrel) in two and a half years. On Tuesday, January 2, a rally in semiconductor stocks sent the NASDAQ above 7,000 for the first time in history, even though investors learned that nine people had been killed in clashes between protestors and Iranian security forces and that North Korea leader Kim Jong Un had said that Pyongyang had completed its nuclear weapons program. Even after learning from the December FOMC meeting minutes that there was general disagreement over the U.S. central bank’s projected three interest rate hikes in 2018, investors pushed all three broad-based indices to new highs on Wednesday as reports indicated the December ISM manufacturing index rose to 59.7% and that construction spending had witnessed an uptick of 0.8% for November.

Exchange-Traded Equity Funds                                                                          

For the second week in three equity ETFs witnessed net outflows, handing back a little less than $9.2 billion for the flows week. Authorized participants (APs) were net redeemers of domestic equity ETFs (-$10.3 billion), removing money from the group also for the second week in three. However, for the seventeenth straight week nondomestic equity ETFs took in net new money, this past week $1.1 billion. iShares Core S&P 500 ETF (+$678 million), Energy Select Sector SPDR ETF (+$395 million), and Industrial Select Sector SPDR ETF (+$348 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 (-$8.9 billion) experienced the largest individual net redemptions, and PowerShares QQQ Trust 1 (-$2.5 billion) suffered the second largest net redemptions of the week.

Exchange-Traded Fixed Income Funds

For the second consecutive week fixed income ETFs witnessed net inflows, this past week taking in some $398 million. APs padded the coffers of government/Treasury ETFs (+$503 million) and corporate high-yield ETFs (+$379 million) while turning their backs on flexible ETFs and corporate investment-grade debt ETFs, redeeming $472 million and $390 million net, respectively. SPDR Bloomberg Barclays High Yield Bond ETF (+$478 million) and iShares Core US Aggregate Bond ETF (+$330 million) attracted the largest amounts of net new money of all individual fixed income ETFs, while Guggenheim BulletShares 2017 Corporate Bond ETF (-$495 million) handed back the largest individual net redemptions for the week after reaching its maturity and shuttering its operations.

Conventional Equity Funds

For the second consecutive week conventional fund (ex-ETF) investors were net purchasers of equity funds, injecting $787 million. Domestic equity funds, handing back a little more than $531 million, witnessed their fifty-second week of net outflows in 53 while posting a 1.19% return on average. Meanwhile, their nondomestic equity fund counterparts, posting a 1.86% return on average, witnessed their second consecutive week of net inflows (+$1.3 billion). On the domestic equity side fund investors shunned large-cap funds (-$655 million net), while on the nondomestic side investors were net purchasers of global equity funds (+$736 million) and international funds (+$582 million).

Conventional Fixed Income Funds

For the first week in four taxable bond funds (ex-ETFs) witnessed net inflows, taking in $2.9 billion this past week. Fund investors padded the coffers of corporate investment-grade debt funds (+$1.4 billion) and flexible funds (+$822 million). Government mortgage funds (-$285 billion) witnessed the largest net redemptions for the week, bettered substantially by corporate high-yield funds (-$192 million). Refinitiv Lipper’s Inflation-Protected Bond Funds classification witnessed its fifth straight week of net inflows (+$152 million this past week) as investors digested the inflation figures and FOMC minutes released during the week. Bank loan funds (-$130 million) witnessed their thirteenth consecutive week of net outflows. For the second week in a row municipal bond funds (ex-ETFs) witnessed net outflows, handing back some $243 million while posting a gain of 0.41% on average for the fund-flows week.

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