by Tom Roseen.
For the first week in four, investors were overall net redeemers of fund assets (including those of conventional funds and ETFs), withdrawing $24.1 billion for Lipper’s fund-flows week ended March 20, 2019. However, the headline numbers are slightly misleading. Fund investors were net purchasers of taxable fixed income funds (+$6.6 billion), equity funds (+$3.6 billion), and municipal bond funds (+$1.4 billion), while being net redeemers of money market funds (-$35.7 billion, their largest weekly net outflows since June 20, 2018).
Markets remained range-bound, but in most cases continued their upward trek during the fund-flows week, with investors applauding the Federal Open Market Committee’s decision to keep rates unchanged and confirming its cautious approach to future interest rate hikes. Investors, however, still kept a cautious eye on mixed stories around the continued China/U.S. trade negotiations. The Russell 2000 Price Only Index (-0.82%) suffered the only negative return during the flows week of the broadly followed indices. The NASDAQ Composite Price Only Index (+1.11%) posted the strongest returns of the broad-based U.S. indices for the flows week, followed by the S&P 500 Price Only Index’s 0.47% and the Dow Jones Industrial Average Price Only Index’s 0.17% plus-side returns. Despite mixed news about the progression of China-U.S. trade talks, the broadly followed overseas markets fared well, with the Shanghai Composite Price Only Index (+2.26%) and the FTSE 100 Price Only Index (+1.54%) posting the strongest returns of the group.
Despite news on Thursday, March 14, suggesting the U.S.-Chinese trade deal had stalled and the Chinese economy continued to decelerate, Chinese Premier Li Keqiang’s pledge to keep in place strong stimulus measures and commitment to striking a trade deal with the U.S. pushed the S&P 500 and NASDAQ to their strongest close in five months on Friday. Investors seemed to ignore news that showed the New York Fed’s Empire State index fell to a near two-year low and focused instead on news that a preliminary reading on U.S. consumer sentiment rose in March to 97.8 from 93.8 in February, and on optimism over continued positive trade discussions.
On Monday, March 18, stocks closed higher ahead of the FOMC meeting in which most analysts expected the Fed would leave interest rates unchanged, but eagerly awaited Chair Jerome Powell’s remarks. Most investors, however, continued to take a wait-and-see approach to investing. Stocks closed lower on Tuesday as investors weighed mixed messages on the ongoing trade discussions between the U.S. and China. Bloomberg News reported China pushed back against demands for concessions, while the Wall Street Journal reported the two countries were in the final stages of negotiations. Investors may also have been disappointed about the news that January factory orders for American-made goods rose a lower-than-expected 0.1%. Nonetheless, stocks on Wednesday moved higher after the Fed projected no interest rate hikes in 2019 and a slowing of its balance-sheet reduction process after its policy setting meeting in recognition of its views of tame inflation and slowing economic growth.
Exchange-Traded Equity Funds
For the second week in a row, equity ETFs witnessed net inflows, taking in a little less than $6.7 billion for the most recent fund-flows week. Authorized participants (APs) were net purchasers of domestic equity ETFs (+$7.3 billion) for the second consecutive week. Meanwhile, nondomestic equity ETFs witnessed net outflows for the second week in three, handing back $612 million this past week. Invesco QQQ Trust 1 (QQQ, +$2.9 billion) and SPDR S&P 500 ETF (SPY, +$2.4 billion) attracted the largest amounts of net new money of all individual equity ETFs. At the other end of the spectrum, iShares MSCI EAFE ETF (EFA, -$1.1 billion) experienced the largest individual net redemptions and Technology Select Sector SPDR ETF (XLK, -$1.1 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 $1.5 billion. APs were net purchasers of corporate investment-grade debt ETFs (+$956 million) and high yield ETFs (+$682 billion), while being net redeemers of international & global debt ETFs (-$212 million). iShares iBoxx $High Yield Corporate Bond ETF (HYG, +$489 million) and iShares Core Total USD Bond Market ETF (IUSB, +$311 million) attracted the largest amounts of net new money of all individual taxable fixed income ETFs. Meanwhile, iShares 7-10 Year Treasury Bond ETF (IEF, -$740 million) and iShares JP Morgan USD Emerging Markets Bond ETF (EMB, -$219 million) handed back the largest individual net redemptions for the week. For the sixth week in a row, municipal bond ETFs witnessed net inflows, taking in $169 million.
Conventional Equity Funds
For the fifth week running, conventional fund (ex-ETF) investors were net redeemers of equity funds, withdrawing $3.1 billion. Domestic equity funds, handing back a little less than $3.7 billion, also witnessed their sixth weekly net outflows while posting a 0.36% return on average for the fund-flows week. Their nondomestic equity fund counterparts, posting a 1.47% return on average, witnessed their first weekly net inflows in five (+$618 million this past week). On the domestic equity side, fund investors gave a cold shoulder to large-cap funds (-$2.7 billion net) and mid-cap funds (-$289 million), while investors on the nondomestic equity side were net purchasers of global equity funds (+$524 billion) and international equity funds (+$94 million).
Conventional Fixed Income Funds
For the tenth consecutive week, taxable bond funds (ex-ETFs) witnessed net inflows, taking in $5.1 billion this past week while posting a 0.39% return for the flows week. Fund investors were net purchasers of corporate investment-grade debt funds (+$4.2 billion) and corporate high yield funds (+$1.1 billion), while flexible funds (-$1.6 billion) suffered the largest net redemptions of the group. For the eleventh straight week, municipal bond funds (ex-ETFs) witnessed net inflows—taking in $1.3 billion—while posting a 0.20% gain on average (their eighth consecutive weekly gain).