by Tom Roseen.
For the second week in three investors were net sellers of fund assets (including those of conventional funds and ETFs), withdrawing a net $35.0 billion for Lipper’s fund-flows week ended October 17, 2018. Fund investors were net redeemers of equity funds (-$17.5 billion), money market funds (-$15.0 billion), taxable fixed income funds (-$1.9 billion), and municipal bond funds (-$642 million).
Investors started the fund-flows week on a sour note, pushing the markets closer to correction territory after the Dow Jones Industrial Average lost almost 1,400 points over two days as investors continued to fret over rising bond yields and the prospect of higher interest rates. However, a good beginning to the earnings season kept investors in the game and the market surprisingly buoyant. The NASDAQ Composite Price Only Index (+2.97%) posted the strongest plus-side return of the major market indices for the flows week, while the Dow returned 0.42%. Brexit negotiations, concerns over Rome’s budget plans, and threats of additional tariffs on Chinese goods kept the overseas markets on pins and needles, with the Shanghai Composite Price Only Index (-6.10%), the Nikkei 225 Price Only Index (-2.29%), and the FTSE 100 Price Only Index (-1.77%) declining for the flows week.
At the beginning of the flows week the NASDAQ Composite briefly slipped into correction territory after the ten-year Treasury yield had jumped to over 3.26% the prior week—its highest level since April 2011. Continued trade tensions with China, concerns about global growth, and the realization that we have entered a higher-interest-rate environment led many to take some of their hard-won profits off the table. Nonetheless, on Friday, October 12, equities rebounded, snapping a six-day losing streak for the S&P 500 Index, after a few bellwether banking stocks’ Q3 earnings reports beat analyst expectations.
On Monday, October 15, U.S. stocks dipped again as investors remained spooked by the prior week’s equity market rout, and large-cap tech stocks struggled. Geopolitical concerns over Saudi Arabia’s possible involvement in a dissident journalist’s disappearance weighed on oil prices, and September U.S. retail sales came in below expectations. However, on Tuesday the U.S. market rallied once again on upbeat earnings reports and release of healthy economic data. The Dow was up almost 550 points on the day, with all three major indices posting their best one-day rise since March 26. Upbeat earnings results from the likes of Goldman Sachs, UnitedHealth Group, and Morgan Stanley carried the day, supported by news that September industrial production rose 0.3% versus analyst expectations of 0.1%.
However, investor enthusiasm fizzled on Wednesday after the Fed released its September meeting minutes, which showed that a majority of the policymakers believed interest rates must continue to rise.
Exchange-Traded Equity Funds
For the first week in six equity ETFs witnessed net outflows, handing back a little more than $13.6 billion for the flows week. Authorized participants (APs) were net sellers of domestic equity ETFs (-$15.8 billion), removing money from the group for the second week running. However, for the third week in a row nondomestic equity ETFs witnessed net inflows, this past week attracting $2.2 billion. Invesco QQQ Trust 1 (+$2.5 billion) and iShares Core MSCI Total International Stock ETF (+$1.1 billion) 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 (-$12.6 billion) experienced the largest individual net redemptions, and Financial Select Sector SPDR ETF (-$1.9 billion) suffered the second largest net redemptions of the week.
Exchange-Traded Fixed Income Funds
For the second week in three taxable fixed income ETFs witnessed net inflows, this past week taking in $1.2 billion. APs were net purchasers of corporate high-yield ETFs (+$1.5 billion) and international & global debt ETFs (+$139 million) while being net redeemers of flexible ETFs (-$1.6 billion) and government-mortgage ETFs (-$231 million). iShares iBoxx $ High Yield Corporate Bond ETF (+$1.5 billion) and SPDR Bloomberg Barclays 1-3 Month T-Bill ETF (+$426 million) attracted the largest amounts of net new money of all individual taxable fixed income ETFs, while iShares iBoxx $ Investment-Grade Corporate Bond ETF (-$461 million) handed back the largest individual net redemptions for the week. For the second week in three municipal bond ETFs witnessed net inflows, this past week taking in $156 million.
Conventional Equity Funds
For the seventeenth week running conventional fund (ex-ETF) investors were net redeemers of equity funds, removing $3.9 billion. Domestic equity funds, handing back a little more than $2.4 billion, witnessed their twenty-second weekly net outflows while posting a 1.07% gain on average for the flows week. Their nondomestic equity fund counterparts, posting a 0.66% gain on average, witnessed their fourth consecutive weekly net outflows (-$1.5 billion this past week). On the domestic equity side fund investors shunned large-cap funds (-$1.1 billion net) and small-cap funds (-$418 million), while on the nondomestic equity side investors were net redeemers of international equity funds (-$978 million) and global equity funds (-$539 million).
Conventional Fixed Income Funds
For the third week running taxable bond funds (ex-ETFs) witnessed net outflows, handing back $3.0 billion this past week. Fund investors injected net new money into corporate investment-grade debt funds (+$45 million), government-Treasury & mortgage funds (+$27 million), and corporate high-quality funds (+$18 million) but were net redeemers of flexible funds (-$1.4 billion) and corporate high-yield funds (-$1.0 billion). For the fourth consecutive week municipal bond funds (ex-ETFs) witnessed net outflows, handing back $798 million while posting a 0.09% gain on average (their second weekly gain in three).