August 9, 2019

Flight to Safety for the Recent Fund-Flows Week

by Tom Roseen.

Fund investors were net purchasers of fund assets (including those of conventional funds and ETFs), depositing a net $38.8 billion for the Lipper fund-flows week ended August 7, 2019. However, the headline number was misleading. Fund flows this week represented a flight to safety, with fund investors padding the coffers of money market funds (+$64.7 billion) and municipal bond funds (+$2.4 billion—their largest weekly net inflows on record going back to 1992), while being net redeemers of equity funds (-$25.2 billion) and taxable fixed income funds (-$3.0 billion).

For the fund-flows week, markets tanked after President Donald Trump announced plans to impose additional tariffs on Chinese goods and China responded by letting its currency slide, causing many to reevaluate how the escalating trade war might impact global economic growth.

We saw significant outflows for equity ETFs this week (-$22.0 billion—their second largest weekly outflows on record [going back to 1996], bettering a $22.4 billion outflow witnessed during the week ended February 5, 2014). The primary culprits for ETF outflows were SPDR S&P 500 ETF (SPY, -$13.4 billion), which experienced the largest individual net redemptions, bettered by Invesco QQQ Trust 1 (QQQ, -$3.6 billion).

Interestingly, despite the 10-year Treasury yield closing down at 1.71% on August 7 (its lowest closing value since November 4, 2016), authorized participants (APs/ETF investors) were net redeemers of taxable bond ETFs (-$5.7 billion), with the second largest net redemption occurring in Lipper’s government-Treasury macro-group (-$1.6 billion). Keep in mind that normally there is an inverse relationship between yield and price, so outflows from this group were a head scratcher. The average government-Treasury ETF posted a 1.69% return for the fund-flows week ended August 7, 2019. As might be expected given the risk-off sentiment this week, high yield ETFs witnessed the largest weekly net redemptions (-$2.5 billion) for the taxable bond ETFs macro-group.

Last, municipal bond funds (including ETFs)—extending their inflow streak to 31 consecutive weeks— witnessed net inflows of $2.4 billion, their largest weekly net inflows on record going back to 1992. The average municipal bond fund returned 0.83% for the fund-flows week, their eighth consecutive week of plus-side performance.

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