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March 15, 2018

U.S. Weekly FundFlows Insight Report: Equity Funds Attract Net New Money for the Week in Spite of Fears of Inflation and a Trade War

by Tom Roseen.

For the first week in four investors were net redeemers of fund assets (including those of conventional funds and ETFs), withdrawing $291 million. However, the headline number was a bit misleading. While fund investors were net redeemers of money market funds (-$24.2 billion), they padded the coffers of equity funds (+$20.4 billion), taxable bond funds (+$3.2 million), and municipal bond funds (+$339 million) for the fund-flows week ended March 14, 2018.

Despite concerns that U.S. tariffs could ignite a trade war and possibly stall global and U.S. economic growth, investors cheered a stronger-than-expected February nonfarm payrolls report, cautiously pushing up select market indices ahead of next week’s FOMC meeting. While for the fund-flows week the Dow Jones Industrial Average Price Only Index (-0.17%) witnessed a decline as industrials and materials stocks weighed late this past flows week, the NASDAQ Composite Price Only Index (+1.35%) and the S&P 500 Price Only Index (+0.83%) posted returns in the black.

Market Wrap-Up

At the beginning of the fund-flows week on Thursday, March 8, the stock market ended higher despite President Donald Trump signing a declaration to impose tariffs on imported steel and aluminum. The tariffs were expected to go into effect on March 23, but select countries—such as Canada, Mexico, and possibly Australia—will be exempted. Investors appeared to shrug off the resignation of White House advisor Gary Cohn and an increase in first-time U.S. jobless claims in the prior week. On Friday the markets got a shot in the arm, pushing the NASDAQ to a record close after the Bureau of Labor Statistics announced the U.S. economy had added 313,000 new jobs for February (the largest gain since mid-2016)—easily beating analyst expectations of 222,000, while hourly wages grew only 0.1%—easing fears of growing inflation. However, on Monday, March 12, continued jitters over a possible trade war and a growing likelihood of the Federal Reserve Board taking a more hawkish stance weighed on the markets and set the stage for the rest of the flows week. On Tuesday the NASDAQ snapped its seven-session winning streak as technology and financial sectors declined even though investors appeared to ignore another key White House staff change—President Trump’s deciding to replace Secretary of State Rex Tillerson. Inflationary concerns ebbed on news the CPI rose only 0.2% for February, in line with economists’ expectations. On Wednesday new trade war concerns surfaced as Trump announced his administration will seek to reduce the trade deficit with China by $100 billion by using tariffs; that made the materials and industrials sectors the biggest decliners for the day.

Exchange-Traded Equity Funds                                                                      

For the second week in three equity ETFs witnessed net inflows, taking in a little more than $21.7 billion for the flows week. Authorized participants (APs) were net purchasers of domestic equity ETFs (+$18.7 billion), injecting money into the group also for the second week in three. For the twenty-seventh straight week nondomestic equity ETFs took in net new money, this past week $3.0 billion. SPDR S&P 500 ETF (+$8.2 billion), iShares Core MSCI EAFE ETF (+$3.7 billion), and PowerShares QQQ Trust 1 ETF (+$3.1 billion) attracted the largest amounts of net new money of all individual equity ETFs. At the other end of the spectrum iShares MSCI Eurozone ETF (-$756 million) experienced the largest individual net redemptions, and iShares MSCI Pacific ex-Japan ETF (-$580 million) suffered the second largest net redemptions of the week.

Exchange-Traded Fixed Income Funds

For the third week in four fixed income ETFs witnessed net inflows, this past week attracting some $1.9 billion. APs padded the coffers of government-Treasury ETFs (+$823 million) and corporate high-yield ETFs (+$475 million). iShares Core US Aggregate Bond ETF (+$397 million) and iShares Short Treasury Bond ETF (+$286 million) attracted the largest amounts of net new money of all individual fixed income ETFs, while iShares iBoxx $ Investment Grade Corporate Bond ETF (-$911 million) handed back the largest individual net redemptions for the week.

Conventional Equity Funds

For the second week in three conventional fund (ex-ETF) investors were net sellers of equity funds, redeeming $1.3 billion. Domestic equity funds, handing back a little less than $1.3 billion, witnessed their third consecutive weekly net outflows while posting a 0.84% gain on average for the flows week. Meanwhile, their nondomestic equity fund counterparts, posting a 0.97% gain on average, witnessed their first week of net outflows in 12 (-$58 million). On the domestic equity side fund investors shunned large-cap funds (-$913 million net), while on the nondomestic equity side investors were net redeemers of global equity funds (-$1.3 billion).

Conventional Fixed Income Funds

For the second week in a row taxable bond funds (ex-ETFs) witnessed net inflows, taking in $1.2 billion this past week. Fund investors padded the coffers of corporate investment-grade debt funds (+$2.2 billion) and flexible funds (+$318 million). Balanced funds (-$1.3 billion) witnessed the largest net redemptions for the week, bettered substantially by corporate high-yield funds (-$465 million). Lipper’s Inflation-Protected Bond Funds classification witnessed its fifteenth straight week of net inflows (+$125 million this past week) as investors evaluated the nonfarm payrolls numbers. Bank loan funds (+$43 million) witnessed their second week of net inflows. Also for the second week in a row municipal bond funds (ex-ETFs) witnessed net inflows, taking in $263 million while posting a loss of 0.12% on average for the fund-flows week.

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