by Tom Roseen.
For the third consecutive week investors were net purchasers of overall fund assets (including those of conventional funds and ETFs), injecting $20.5 billion for our Lipper’s fund-flows week ended August 8, 2018. But, despite continued strong corporate earnings and a fair nonfarm-payrolls report during the week, fund investors were net redeemers of equity funds (-$962 million), while they padded the coffers of money market funds (+$16.6 billion), taxable bond funds (+$4.2 billion net), and municipal bond funds (+$623 million net).
Despite President Donald Trump turning the trade-war rhetoric up another notch during the fund-flows week, investors continued to bid up risky assets as the Q2 2018 earnings season trailed off. According to the Proprietary Research team, of the 440 S&P 500 constituents that had reported to date, 78.6% had beaten analyst expectations. The actual earnings growth rate clocked in at 24.0%—helping market participants offset their trade-war jitters. The NASDAQ Composite Price Only Index (+2.35%) and the S&P 500 Price Only Index (+1.58%) posted the strongest returns of the domestic broad-based indices, while the Dow Jones Industrial Average Price Only Index (+0.99%) was the relative laggard. Overseas, the Shanghai Composite Price Only Index (-3.38%) posted the largest decline of the broadly followed indices, bettered by the Xetra DAX Total Return Index (-1.40%) and the FTSE 100 Price Only Index (-0.24%). The Nikkei 225 Price Only Index (+0.47%) witnessed the only plus-side return of the subgroup for the fund-flows week.
At the beginning of the flows week a rally by Apple led the markets higher. The iPhone maker’s market cap breeched the $1-trillion mark, rising 3% on the day, with investors shrugging off threats by the Trump administration to double the proposed tariffs on $200 billion of Chinese goods to 25%. June factory orders increased 0.7%, and—as was expected—the Bank of England raised its key interest rate 25 basis points. On Friday, August 3, investors shook off a lower-than-expected nonfarm-payrolls report, which showed the U.S. economy had added 157,000 new jobs for July, compared to the 195,000 forecasted by analysts. The rate of wage gains remained unchanged at 2.7%, signaling tame inflationary pressures, and the unemployment rate fell to 3.9%—all pointing to a healthy economy and job market.
On Monday, August 6, the NASDAQ extended its winning streak to a fifth consecutive session, shrugging off news from China’s Global Times that the country is prepared for a “protracted war” over trade and is considering new tariffs on $60 billion of U.S. products. Data showed that June German manufacturing orders had declined 4%. The domestic markets continued to rally after Elon Musk tweeted that he was considering taking Tesla private and that the funding was already secured. Along with the continuation of stellar Q2 earnings reports, the markets were propped up after the Labor Department showed there were 6.66 million job openings at the end of June, the third highest in history. On Wednesday, August 8, the markets closed mixed after a few high-profile firms posted weak Q2 earnings results, but the NASDAQ Composite was able to stay on the plus-side, eking out its longest winning streak (seven) since March 12, 2018. The Shanghai Composite took it on the chin for the day as the trade-war rhetoric between China and the U.S. intensified.
Exchange-Traded Equity Funds
For the fourth consecutive week equity ETFs witnessed net inflows, taking in a little less than $804 million for the flows week. Authorized participants (APs) were net redeemers of domestic equity ETFs (-$593 million), removing money from the group for the first week in five. But, for the third week in four nondomestic equity ETFs also witnessed net inflows, this past week attracting $1.4 billion. Invesco QQQ Trust 1 (+$1.5 billion), Financial Select Sector SPDR ETF (+$928 million), and iShares Core MSCI Emerging Markets ETF (+$833 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 (-$6.4 billion) experienced the largest individual net redemptions, and iShares Russell 2000 ETF (-$553 million) suffered the second largest net redemptions of the week.
Exchange-Traded Fixed Income Funds
For the seventh week in eight taxable fixed income ETFs witnessed net inflows, this past week taking in $2.2 billion. APs were net purchasers of government-Treasury ETFs (+$904 million) and corporate high-yield ETFs (+$837 million) but were net redeemers of international & global income ETFs (-$137 million). iShares iBoxx $ High Yield Corporate Bond ETF (+$747 million) and iShares 7-10 Year Treasury Bond ETF (+$376 million) attracted the largest amounts of net new money of all individual taxable fixed income ETFs, while iShares TIPS Bond ETF (-$246 million) handed back the largest individual net redemptions for the week. For the fourth week in five municipal bond ETFs witnessed net inflows, this past week taking in $44 million.
Conventional Equity Funds
For the seventh week running conventional fund (ex-ETF) investors were net redeemers of equity funds, removing $1.8 billion. Domestic equity funds, handing back a little less than $1.9 billion, witnessed their twelfth weekly net outflows while posting a 1.33% return on average for the flows week. Their nondomestic equity fund counterparts, posting a 0.28% loss on average, witnessed their first week of net inflows (although only +$127 million) in seven. On the domestic equity side fund investors shunned large-cap funds (-$1.3 billion net) and equity income funds (-$357 million), while on the nondomestic equity side investors were net purchasers of global equity funds (+$66 million) and international equity funds (+$61 million).
Conventional Fixed Income Funds
For the third week in four taxable bond funds (ex-ETFs) witnessed net inflows, attracting $2.0 billion this past week. Fund investors padded the coffers of corporate investment-grade debt funds (+$2.3 billion) and government-Treasury funds (+$87 million) but were net redeemers of flexible funds (-$442 million) and government-mortgage funds (-$58 million) for the week. For the fourth week in five municipal bond funds (ex-ETFs) witnessed net inflows, taking in $579 million while posting a 0.07% loss on average (their second weekly decline in three).