February 7, 2019

U.S. Weekly FundFlows Insight Report: Mutual Fund and ETF Fund Flows Diverge for the Week

by Tom Roseen.

For the second week in three, investors were overall net purchasers of fund assets (including those of conventional funds and ETFs), injecting $30.8 billion for Lipper’s fund-flows week ended February 6, 2019. Fund investors were net purchasers of money market funds (+$20.5 billion), taxable fixed income funds (+$6.5 billion), equity funds (+$2.6 billion), and municipal bond funds (+$1.1 billion).

Market Wrap-Up

Investors continued to be risk-seeking during the fund-flows week, cheering a blockbuster nonfarm payroll report, dovish comments by the Federal Reserve Board, increased optimism around a China/U.S. trade agreement, and generally good Q4 earnings reports and forward guidance. The NASDAQ Composite Price Only Index (+2.68%) posted the strongest returns of the broad-based U.S. indices for the flows week, followed by the Russell 2000 Price Only Index’s 2.09% and the S&P 500 Price Only Index’s 1.89% plus-side returns. Investors remained sanguine on overseas issues, remaining cautiously optimistic over ongoing Brexit negotiations and the U.S./China trade discussions, with the FTSE 100 Price Only Index (+2.50%) and the Nikkei 225 Price Only Index (+1.34%) posting the strongest returns of the broadly followed overseas indices.

At the beginning of the flows week, while mixed, stocks generally ended higher after the Fed indicated it would be patient with interest rates following its two-day January policy meeting. However, stock upside was hindered by news that new applications for unemployment benefits in the week prior rose by 53,000 (significantly more than analysts expected), Q4 wage growth rose to an 11-year high, and the Chicago PMI came in lower than expected. Nonetheless, the broad-based U.S. indices posted their strongest January return in more than 30 years. On Friday, February 1, despite a gloomy Q1 outlook by Amazon, investors cheered a strong nonfarm payroll report, which showed the U.S. economy added 304,000 new jobs in January, beating analyst estimates of 172,000, and embraced news the January ISM manufacturing index’s final reading (56.6%) came in better than expected.

Tech issues led the charge on Monday, February 4, despite news that November U.S. factory orders fell faster than expected, as investors looked toward the slate of high-profile earnings reports being released during the week. Stocks continued to benefit from dovish Fed comments and developments in U.S./China trade talks. Shrugging off a lower-than-expected January ISM nonmanufacturing report, investors pushed equities higher on Tuesday, extending the S&P 500’s winning streak to a fifth consecutive day. However, stocks took a breather on Wednesday, declining marginally, after President Donald Trump’s State of the Union address offered scant details on his economic agenda.

Exchange-Traded Equity Funds

For the second week a row, equity ETFs witnessed net outflows, handing back a little less than $437 million for the most recent fund-flows week. Authorized participants (APs) were net redeemers of domestic equity ETFs (-$2.8 billion) for the fourth consecutive week. However, nondomestic equity ETFs witnessed net inflows for the third week running, attracting $2.4 billion this past week. iShares MSCI Emerging Markets ETF (EEM, +$1.4 billion) and iShares Core MSCI Emerging Markets ETF (IEMG, +$859 million) attracted the largest amounts of net new money of all individual equity ETFs. At the other end of the spectrum, SPDR S&P Dividend ETF (SDY, -$1.2 billion) experienced the largest individual net redemptions and SPDR S&P 500 ETF (SPY, -$1.0 billion) suffered the second largest net redemptions of the week.

Exchange-Traded Fixed Income Funds

For the second week in a row, taxable fixed income ETFs witnessed net inflows, taking in $1.7 billion. APs were net purchasers of corporate high-yield debt ETFs (+$1.7 billion) and international & global debt ETFs (+$1.4 billion), while being net redeemers of government-Treasury ETFs (-$1.8 billion) and flexible ETFs (-$336 million). iShares JPM USD Emerging Markets Bond ETF (EMB, +$1.2 billion) and iShares iBoxx $ High Yield Corporate Bond ETF (HYG, +$862 million) attracted the largest amounts of net new money of all individual taxable fixed income ETFs. Meanwhile, iShares 1-3 Year Treasury Bond ETF (SHY, -$814 million) and iShares Short Treasury Bond ETF (SHV, -$415 million) handed back the largest individual net redemptions for the week. For the fourth week in a row, municipal bond ETFs witnessed net outflows, handing back $378 million.

Conventional Equity Funds

For the fifth consecutive week, conventional fund (ex-ETF) investors were net purchasers of equity funds, injecting $3.1 billion. Domestic equity funds, taking in a little more than $1.2 billion, also witnessed their fifth weekly net inflows while posting a 1.88% return on average for the fund-flows week. Their nondomestic equity fund counterparts, posting a 1.16% return on average, witnessed their fifth weekly net inflows (+$1.8 billion this past week). On the domestic equity side, fund investors embraced large-cap funds (+$595 million net) and small-cap funds (+$429 million), while on the nondomestic equity side investors were net purchasers of international equity funds (+$1.2 billion) and global equity funds (+$633 million).

Conventional Fixed Income Funds

For the fourth consecutive week, taxable bond funds (ex-ETFs) witnessed net inflows, taking in $4.8 billion this past week while posting a 0.66% return for the flows week. Fund investors were net purchasers of corporate high-yield debt funds (+$2.1 billion) and corporate investment-grade debt funds (+$2.0 billion), while flexible funds (-$500 million) suffered the only net redemptions of the group. For the fifth week running, municipal bond funds (ex-ETFs) witnessed net inflows, taking in $1.5 billion, their largest weekly net inflow since January 9, 2013, while posting a 0.51% gain on average (their second consecutive weekly gain).

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