August 22, 2019

U.S. Weekly FundFlows Insight Report: Despite Market Turnaround, Fund Investors and APs Sour on Equities During the Week

by Tom Roseen.

For the third consecutive week, investors were overall net purchasers of fund assets (including those of conventional funds and ETFs), injecting $14.6 billion for Lipper’s fund-flows week ended August 21, 2019. Fund investors were net purchasers of money market funds (+$22.6 billion), taxable fixed income funds (+$2.8 billion), and municipal bond funds (+$1.6 billion). However, they were net redeemers of equity funds (-$12.2 billion).

Market Wrap-Up

For the fund-flows week ended August 21, 2019, markets rebounded after suffering the worst one-day decline since December 4 on Wednesday, August 14. While keeping a cautious eye on the U.S./China trade war, investors warmed to news of better-than-expected Q2 earnings from likes of Walmart and after learning that retail sales remain strong in the U.S. The NASDAQ Composite Price Only Index (+3.17%) witnessed the strongest return of the broadly followed U.S indices for the fund-flows week, followed by the S&P 500 Price Only Index (+2.95%) and the Russell 2000 Price Only Index (+2.88%). Overseas, the Nikkei 225 Price Only Index suffered the only loss of the subgroup, declining 0.80% for the week, while the Xetra DAX Total Return Index (+2.18%) posted the strongest weekly returns of the other oft followed broad-based global indices.

On Thursday, August 15, stocks recovered some ground after the 800.49-point meltdown witnessed by the Dow Jones Industrial Average the day before. Investors shrugged off news that July industrial output declined for the second month in four and threats of an unspecified retaliation by China against the U.S. proposed tariffs for September, and focused instead on better-than-expected Q2 earnings and guidance from Walmart, commitment from central banks around the world to roll out fresh stimulus measures, and data showing that U.S. retail sales jumped in July. While Friday marked the third consecutive week that the Dow suffered downside returns, the broad-based U.S. indices stitched together their second day of plus-side performance, with the Dow tagging on 300 points to its Thursday close.  Banks and financial stocks got a shot in the arm on the day, as long-term interest rates rose and recessionary fears declined slightly.

On Monday, August 19, stocks witnessed another big upside day after investors learned that Germany was considering stimulus measures if needed and after President Donald Trump made encouraging statements regarding trade talks. On Tuesday, markets snapped their three-day winning streak as recessionary worries continued to plague market participants and investors evaluated developments after learning about Italy’s Prime Minister Giuseppe Conte’s resignation. However, on Wednesday, August 21, the Dow posted a 240-point rebound for the day after the release of the July Federal Reserve Board meeting minutes, which suggested that the Fed wanted to remain flexible in applying policy changes. A better-than-expected Q2 earnings reports from the likes of Target and other retailers helped buoy investor sentiment at the end of the flows week.

Exchange-Traded Equity Funds

For the second week in three, equity ETFs witnessed net outflows, handing back a little more than $7.3 billion for the most recent fund-flows week. Authorized participants (APs) were net sellers of domestic equity ETFs (-$4.5 billion), also for the second week in three. Meanwhile, nondomestic equity ETFs witnessed net outflows for the fourth week running, handing back $2.8 billion this past week. Consumer Staples Select Sector SPDR ETF (XLP, +$848 million) and SPDR Gold (GLD, +$369 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 (SPY, -$3.3 billion) experienced the largest individual net redemptions and iShares MSCI Emerging Markets ETF (EEM, -$1.3 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 $1.2 billion. APs were net purchasers of government-Treasury ETFs (+$1.6 billion) and corporate investment-grade debt ETFs (+$533 million), while being net redeemers of corporate high yield ETFs (+$1.2 billion) and international & global debt ETFs (-$209 million). iShares 7-10 Year Treasury Bond ETF (IEF, +$363 million) and iShares U.S. Treasury Bond ETF (GOVT, +$323 million) attracted the largest amounts of net new money of all individual taxable fixed income ETFs. Meanwhile, iShares iBoxx $ High Yield Corporate Bond ETF (HYG, -$744 million) and SPDR Bloomberg Barclays High Yield Bond ETF (JNK, -$498 million) handed back the largest individual net redemptions for the week. For the tenth consecutive week, municipal bond ETFs witnessed net inflows, taking in $209 million.

Conventional Equity Funds

For the twenty-seventh consecutive week, conventional fund (ex-ETF) investors were net redeemers of equity funds, withdrawing $4.9 billion. Domestic equity funds, handing back a little more than $3.4 billion, witnessed their twenty-eighth weekly net outflows while posting a 2.88% return on average for the fund-flows week. Their nondomestic equity fund counterparts, posting a 2.69% gain on average, witnessed their first weekly net outflows in three, handing back some $1.5 billion this past week. On the domestic equity side, fund investors turned their backs on large-cap funds (-$2.4 billion) and small-cap funds (-$403 million), while investors on the nondomestic equity side were net sellers of international equity funds (-$1.3 billion) and global equity funds (-$180 million).

Conventional Fixed Income Funds

For the third consecutive week, taxable bond funds (ex-ETFs) witnessed net inflows, taking in some $1.6 billion this past week while posting a 0.59% gain for the fund-flows week. Investors were net purchasers of corporate investment-grade debt funds (+$1.5 billion) and balanced funds (+$369 million), while high yield funds (-$330 million) and international & global debt funds (-$299 million) witnessed the largest net outflows of the group. For the thirty-third straight week, municipal bond funds (ex-ETFs) witnessed net inflows—taking in $1.4 billion—while posting a 0.04% loss on average for their first weekly market decline in 10.

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