by Tom Roseen.
For the first week in three, investors were overall net purchasers of fund assets (including those of conventional funds and ETFs), injecting $21.3 billion for Lipper’s fund-flows week ended December 12, 2018. However, the headline numbers are misleading. Fund investors were net purchasers of money market funds (+$81.2 billion, their largest weekly net inflows on record) while being net redeemers of equity funds (-$46.2 billion, just shy of twice the net redemptions of any other week going back to 1992), taxable fixed income funds (-$13.4 billion), and municipal bond funds (-$317 million). Caveat emptor, several funds went ex-dividend on December 12, paying out capital gains and income distributions for 2018 and possibly causing a temporary one-day decline in total net assets. As a result, we might see a reversal of some of those “record outflows” when the money is reinvested back into the funds on December 13.
Investors remained cautious for the fund-flows week ended December 12, 2018, rattled by uncertainty surrounding trade talks, Brexit and Italy, and wild market swings. The NASDAQ Composite Price Only Index (-0.84%) mitigated losses better than the other broad-based indices for the flows week, followed by the Russell 2000 Price Only Index’s minus 1.72% and the S&P 500 Price Only Index’s minus 1.81%. Investors turned more risk averse after U.K. Prime Minister Theresa May announced her decision to postpone a vote on her plans for the U.K. to exit the European Union, and after learning that Huawei CFO Meng Wanzhou was arrested by Canadian authorities at the request of U.S. authorities for violating sanctions on Iran. Investors became concerned the arrest could derail trade negotiations between the U.S. and China. The Shanghai Composite Price Only Index (-2.13%) and the Xetra DAX Total Return Index (-2.20%) witnessed the largest declines of the broadly followed overseas indices.
At the beginning of the flows week the broader markets initially suffered a precipitous decline following the arrest of Huawei’s CFO. Stock index futures dropped so rapidly on Thursday that circuit breakers were triggered on the Chicago Mercantile Exchange to avoid larger losses. However, after a Wall Street Journal segment was released citing the Federal Reserve Board may consider a pause in interest rate hikes after December’s policy meeting, the broad-based indices recovered most of their earlier losses. However, U.S. stocks took it on the chin on Friday, with the Dow losing 558.7 points on the day as concerns over global trade continued to weigh on investor psyche. This was despite a relatively strong nonfarm payrolls report. The Labor Department reported the U.S. economy added 155,000 new jobs in November, slightly under analyst expectations of 190,000, but the unemployment rate held steady at 3.7%.
Despite a report on the sharp decline in Chinese export growth, on Monday, December 10, the U.S. market roared back from large intraday losses after investors’ confidence in the strength of the U.S. economy offset continued worries over global growth and the U.S.-China trade dispute. On Tuesday, the market experienced another day of volatile trade as investors remained skittish even after learning that the U.S. and China had entered into the next stage of formal trade talks, and after Chinese officials agreed to reduce tariffs on U.S. autos from 40% to 15%. On Wednesday, stocks rose on U.S.-China trade optimism after Huawei CFO Meng Wanzhou was released on bail and President Donald Trump indicated he’d intervene if it would help facilitate a trade deal with China.
Exchange-Traded Equity Funds
For the first week in five equity ETFs witnessed net outflows, handing back some $1.0 billion for the most recent flows week. Authorized participants (APs) were net sellers of domestic equity ETFs (-$3.5 billion), redeeming money from the group for the second week in three. However, for the eleventh week in a row nondomestic equity ETFs witnessed net inflows, this past week attracting $2.5 billion. iShares Russell 1000 Value ETF (+$737 million) and Consumer Staples Select Sector SPDR ETF (+$540 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 (-$4.2 billion) experienced the largest individual net redemptions, and iShares Core S&P 500 (-$1.6 billion) suffered the second largest net redemptions of the week.
Exchange-Traded Fixed Income Funds
For the fourth week in a row, taxable fixed income ETFs witnessed net inflows, taking in $1.2 billion. APs were net purchasers of government-Treasury ETFs (+$1.8 billion) and government-mortgage ETFs (+$294 million) while being net redeemers of corporate high yield ETFs (-$933 million) and international & global debt ETFs (-$208 million). iShares Core US Aggregate Bond ETF (+$569 million) and iShares 7-10 Year Treasury Bond ETF (+$533 million) attracted the largest amounts of net new money of all individual taxable fixed income ETFs. Meanwhile, iShares iBoxx $ High Yield Corporate Bond ETF (-$1.2 billion) and iShares Floating Rate Bond ETF (-$514 million) handed back the largest individual net redemptions for the week. For the fifth week in a row, municipal bond ETFs witnessed net inflows, taking in $643 million.
Conventional Equity Funds
For the twenty-fifth week running, conventional fund (ex-ETF) investors were net redeemers of equity funds, removing $45.2 billion (their largest weekly outflows on record). Domestic equity funds, handing back a little less than $32.5 billion, witnessed their thirtieth weekly net outflows while posting a 1.67% loss on average for the flows week. Their nondomestic equity fund counterparts, posting a 1.58% loss on average, witnessed their twelfth consecutive weekly net outflows (-$12.7 billion this past week, also a record amount). On the domestic equity side, fund investors shunned large-cap funds (-$20.2 billion net) and small-cap funds (-$5.1 billion), while on the nondomestic equity side investors were net redeemers of international equity funds (-$10.2 billion) and global equity funds (-$2.5 billion).
Conventional Fixed Income Funds
For the third consecutive week, taxable bond funds (ex-ETFs) witnessed net outflows, handing back $14.6 billion this past week. Fund investors were net redeemers of flexible funds (-$7.2 billion), corporate investment-grade debt funds (-$4.0 billion), and corporate high yield funds (-$1.1 billion). For the twelfth consecutive week, municipal bond funds (ex-ETFs) witnessed net outflows, handing back $959 million while posting a 0.02% gain on average (their fifth weekly gain in row).