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May 10, 2018

U.S. Weekly FundFlows Insight Report: Weekly Equity Fund Flows Turn Negative Despite the Up Market

by Tom Roseen.

For the third week in a row investors were net purchasers of fund assets (including those of conventional funds and ETFs), taking in a little more than $8.2 billion. Despite market gains during the week, fund investors were net redeemers of equity funds (-$231 million) while being net purchasers of money market funds (+$8.2 billion), municipal bond funds (+$167 million), and taxable bond funds (+$86 million) for the fund-flows week ended May 9, 2018.

Market Wrap-Up

During the flows week it appeared investors—at least momentarily—shrugged off their concerns over the ongoing China/U.S. trade talks, the U.S.’s exit from the Iran nuclear deal, and inflation, turning their attention back to the strong Q1 2018 earnings season and the rally in oil prices. For the fund-flows week the NASDAQ Composite Price Only Index (+3.37%) witnessed the largest rise of the broad-based indices, followed by the Russell 2000 Price Only Index (+2.65%) and the Dow Jones Industrial Average Price Only Index (+2.58%). Overseas, the Shanghai Composite Price Only Index (+2.24%) posted the strongest plus-side return for the week, while the Nikkei 225 suffered the only decline, losing however only 0.02% of its prior week’s value.

At the beginning of the flows week investors weighed the possibilities of the Federal Reserve Board’s next move after it acknowledged U.S. inflation was ticking higher. Analysts speculated that it didn’t appear the Fed was too eager to accelerate the pace of its interest rate hikes. The Dow was able to erase a 400-point slide to end higher on Thursday as investors looked toward the April nonfarm-payrolls report. Despite learning that the unemployment rate had dropped to 3.9% for April, investors breathed a sigh of relief when it was reported that the U.S. had added just 164,000 jobs—below analysts’ expected 188,000—but that wage inflation wasn’t in the mix. Warren Buffett, CEO and Chairman of Berkshire Hathaway, helped renew the rally in tech stocks after taking a position in Apple on Friday, May 4.

On Monday, May 7, market gains were muted even as oil prices hit multi-year highs after President Donald Trump indicated a decision was imminent concerning whether the U.S. would decertify the 2015 Iran nuclear pact. Investors learned that no trade deal was struck after the multiday talks with Beijing’s trade negotiators were concluded. As expected, Trump announced on Tuesday that the U.S. was abandoning the 2015 Iran nuclear deal. However, while the markets were mixed, the Dow was able to stitch together a fourth consecutive up day. On Wednesday the broad market rallied as gains in energy, financial, and technology issues pushed the major indices higher. Near-month crude oil prices rose 3.01% on the day to settle at $71.14/barrel in anticipation that the new sanctions against Iran would curb the country’s output, impacting global oil supplies. The Energy Information Administration reported that crude oil stockpiles had fallen more than expected the prior week. The ten-year Treasury yield closed above the 3% mark at the end of the flows week.

Exchange-Traded Equity Funds                                                                      

For the fifth week in a row equity ETFs witnessed net inflows, taking in a little more than $1.3 billion for the flows week. Authorized participants (APs) were net purchasers of domestic equity ETFs (+$3.0 billion), adding money to the group for the second consecutive week. However, for the second week in a row nondomestic equity ETFs witnessed net redemptions, this past week handing back $1.6 billion. iShares Core S&P 500 ETF (+$4.5 billion), PowerShares QQQ Trust 1 (+$1.3 billion), and iShares Russell 2000 ETF (+$563 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 (-$3.3 billion) experienced the largest individual net redemptions, and iShares MSCI Emerging Markets ETF (-$1.0 billion) suffered the second largest net redemptions of the week.

Exchange-Traded Fixed Income Funds

For the second week running taxable fixed income ETFs witnessed net inflows, although this past week taking in just $164 million. APs padded the coffers of government-Treasury ETFs (+$623 million net) and corporate investment-grade debt ETFs (+$502 million net) but were net redeemers of international & global debt ETFs (-$412 million) and corporate high yield ETFs (-$394 million). iShares 1-3 Year Treasury Bond ETF (+$1.1 billion) and Schwab Short-Term U.S. Treasury ETF (+$325 million) attracted the largest amounts of net new money of all individual taxable fixed income ETFs, while iShares 20+ Year Treasury Bond ETF (-$531 million) handed back the largest individual net redemptions for the week. For the second week in a row municipal bond ETFs witnessed net inflows, this past week taking in $24 million.

Conventional Equity Funds

For the second week in a row conventional fund (ex-ETF) investors were net redeemers of equity funds, removing $1.6 billion. Domestic equity funds, handing back a little less than $2.4 billion, witnessed their second consecutive weekly net outflows while posting a 2.34% return on average for the flows week. Meanwhile, their nondomestic equity fund counterparts, posting a 0.85% return on average, witnessed their eighth consecutive week of net inflows (+$825 million). On the domestic equity side fund investors shunned large-cap funds (-$1.7 billion net), while on the nondomestic equity side investors were net purchasers of international equity funds (+$819 billion), with emerging markets funds (+$455 million) attracting over half of those net inflows.

Conventional Fixed Income Funds

For the second consecutive week taxable bond funds (ex-ETFs) witnessed net outflows, handing back $78 million this past week. Fund investors padded the coffers of international & global debt funds (+$578 million) and corporate investment-grade debt funds (+$302 million) but were net redeemers of high-yield funds (-$361 million) and government-Treasury and mortgage funds (-$340 million) for the week. Despite the increase in inflationary fears by some pundits, Lipper’s Inflation-Protected Bond Funds classification witnessed its third consecutive week of net redemptions, handing back $72 million this past week. Bank loan funds (+$455 million)—on the other hand—witnessed their tenth consecutive week of net inflows. For the second week in three municipal bond funds (ex-ETFs) witnessed net inflows, taking in $143 million while posting a 0.35% return on average for the fund-flows week.

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