by Tom Roseen.
For the second week in a row, investors were overall net purchasers of fund assets (including those of conventional funds and ETFs), injecting $15.0 billion for Lipper’s fund-flows week ended May 1, 2019. However, the headline numbers are misleading. Fund investors were net purchasers of money market funds (+$16.0 billion) and municipal bond funds (+$1.2 billion), but were net redeemers of equity funds (-$1.8 billion) and taxable fixed income funds (-$352 million).
The S&P 500 Index strung together three consecutive days of record closes during the fund-flows week ended May 1, 2019, as investors cheered generally strong Q1 earnings reports and a continuation of talks with Chinese trade delegates. While the NASDAQ Composite Index got a shot in the arm early in the flows week on encouraging news from the likes of Facebook, disappointing sales figures from Alphabet weighed on the tech-heavy index toward the end of the flows week. However, the major U.S. indices remained range-bound during the flows week—most posting downside returns—as investors focused on mixed economic data and the Federal Open Market Committee meeting that concluded on Wednesday.
The S&P 500 Price Only Index (-0.12%) mitigated losses better than its broadly followed U.S. cohorts during the flows week. The Russell 2000 Price Only Index (-0.74%) posted the largest losses of the broad-based U.S. indices for the flows week, bettered by the NASDAQ Composite Price Only Index’s -0.65% and the Dow Jones Industrial Average Price Only Index’s -0.63% returns. Despite lower-than-expected Japanese industrial production numbers in March, the Nikkei 225 Price Only Index (+0.80%) posted the strongest returns for the flows week of the broadly followed overseas indices, with the Xetra DAX Total Return Index (+0.86%) posting the next strongest plus-side returns. The Shanghai Composite Price Only Index (-4.13%), however, posted the largest losses after investors learned that Chinese factory activity weakened in April.
On Thursday, April 25, U.S. stocks closed mostly lower as investors digested news that 3M posted disappointing Q1 earnings, and after they learned new first-time jobless claims rose 37,000 from the week prior—significantly above analyst expectations. A surge in social media stocks wasn’t enough to offset the losses from manufacturers. However, on Friday, April 26, the equity markets were pushed higher on news that the U.S. economy grew 3.2% in Q1, outpacing analyst expectations of 2.2%. However, investors were keeping a keen eye on headwinds the global economy is facing after learning that Japanese industrial production rose a weaker-than-expected 1% in March. Nonetheless, Q1 corporate earnings results continued to top lowered market expectations.
On Monday, April 29, both the S&P 500 and NASDAQ posted back-to-back record closes as we entered one of the busiest reporting periods of the earnings season and U.S./China trade talks were scheduled to resume this week in Beijing. March U.S. consumer spending also beat analyst expectations, rising 0.9%. Despite the NASDAQ losing some ground on Tuesday after Alphabet’s earnings report showed revenue growth slowed during the quarter, the S&P 500—rising marginally on the day—witnessed its third consecutive record close. Many investors, however, remained on the sidelines, waiting for comments by Federal Reserve Board Chair Jerome Powell at the conclusion of the Fed’s policy setting meeting on Wednesday. Shrugging off payroll firm ADP’s April estimates released on Wednesday, May 1, that the U.S. private sector added 275,000 new jobs—beating analyst consensus of 176,000—investors focused on a lower-than-expected reading from the ISM manufacturing index and on comments by Fed Chair Powell downplaying chances of easier monetary policy in the near term.
Exchange-Traded Equity Funds
For the fourth week in five, equity ETFs witnessed net inflows, taking in a little more than $3.7 billion for the most recent fund-flows week. Authorized participants (APs) were net purchasers of domestic equity ETFs (+$2.4 billion), also for the fourth week in five. Meanwhile, nondomestic equity ETFs also witnessed net inflows for the fifth consecutive week, taking in $1.4 billion this past week. SPDR S&P 500 ETF (SPY, +$1.9 billion) and iShares Core MSCI EAFE ETF (IEFA, +$929 million) attracted the largest amounts of net new money of all individual equity ETFs. At the other end of the spectrum, iShares Russell 2000 ETF (IWM, -$674 million) experienced the largest individual net redemptions and First Trust Health Care AlphaDEX ETF (FXH, -$666 million) suffered the second largest net redemptions of the week.
Exchange-Traded Fixed Income Funds
For the first week in eight, taxable fixed income ETFs witnessed net outflows, handing back $700 million. APs were net redeemers of corporate investment-grade debt ETFs (-$599 million) and government Treasury ETFs (-$300 million), while being net purchasers of government-mortgage ETFs (+$170 million) and international & global debt ETFs (+$120 million). iShares 20+ Year Treasury Bond ETF (TLT, +$357 million) and Schwab US TIPS ETF (SCHP, +$208 million) attracted the largest amounts of net new money of all individual taxable fixed income ETFs. Meanwhile, iShares TIPS Bond ETF (TIP, -$788 million) and iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD, -$621 million) handed back the largest individual net redemptions for the week. For the fourth week in a row, municipal bond ETFs witnessed net inflows, taking in $314 million.
Conventional Equity Funds
For the eleventh week running, conventional fund (ex-ETF) investors were net redeemers of equity funds, withdrawing $5.5 billion. Domestic equity funds, handing back a little less than $3.6 billion, witnessed their twelfth weekly net outflows while posting a 0.23% loss on average for the fund-flows week. Their nondomestic equity fund counterparts, posting a 0.01% gain on average, witnessed their sixth consecutive weekly net outflows (-$1.9 billion this past week). On the domestic equity side, fund investors gave a cold shoulder to large-cap funds (-$2.8 billion net) and small-cap funds (-$435 million), while investors on the nondomestic equity side were net sellers of international equity funds (-$1.4 billion) and global equity funds (-$559 million).
Conventional Fixed Income Funds
For the sixteenth consecutive week, taxable bond funds (ex-ETFs) witnessed net inflows, taking in $348 million this past week while posting a 0.18% gain for the flows week. Fund investors were net purchasers of corporate investment-grade debt funds (+$973 million) and corporate high yield funds (+$126 million), while flexible funds (-$853 million) suffered the largest net redemptions of the group. For the seventeenth straight week, municipal bond funds (ex-ETFs) witnessed net inflows—taking in $877 million—while posting a 0.51% return on average (their second consecutive weekly market gain).