August 8, 2019

U.S. Weekly FundFlows Insight Report: Fund Investors and APs Duck for Cover During the Week

by Tom Roseen.

For the eighth week in nine, investors were overall net purchasers of fund assets (including those of conventional funds and ETFs), injecting $38.8 billion for Lipper’s fund-flows week ended August 7, 2019. However, the headline number is misleading. Fund investors were net purchasers of money market funds (+$64.7 billion) and municipal bond funds (+$2.4 billion, its largest weekly net inflows on record going back to 1992). However, they were net redeemers of equity funds (-$25.2 billion) and taxable fixed income funds (-$3.0 billion).

Market Wrap-Up

For the fund-flows week ended August 7, 2019, 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. The Russell 2000 Price Only Index (-4.69%) witnessed the largest decline of the broadly followed U.S indices for the fund-flows week, bettered by the NASDAQ Composite Price Only Index (-3.82%) and the S&P 500 Price Only Index (-3.23%). Overseas, the Shanghai Composite Price Only Index suffered the largest losses of the subgroup, declining 7.68% for the week, while the Nikkei 225 Price Only Index (-2.14%) mitigated losses better than the other oft followed broad-based global indices.

On Thursday, August 1, stocks suffered their third consecutive day of negative returns after Trump said he’d planned on imposing 10% tariffs on an additional $300 billion of Chinese goods beginning September 1, pushing stocks lower and the CBOE volatility index (VIX) to a nearly two-month high. Adding to investors’ concerns was a report to by the Institute of Supply Management that showed the ISM manufacturing index slipped to 51.2 in July, its lowest reading since August 2016. As one might expect in a flight to safety, investors bid up both the price of gold and Treasuries while pressuring oil prices on concerns of declining global demand. On Friday, stocks suffered yet another day of big losses as investors worried about Trump’s escalation of the trade war and after they learned that, with 77% of the S&P 500 constituents reporting Q2 earnings thus far, company earnings are on track to record their second consecutive quarterly decline for the first time since 2016. Despite the U.S. Department of Labor reporting that the U.S. economy added 164,000 jobs in July and the unemployment rate held steady at 3.7%, gold closed at a six-year high and the 10-year Treasury yield declined to 1.89%—its lowest closing value since November 8, 2016.

On Monday, August 5, stocks suffered their largest one-day decline of 2019 after China allowed its currency to decline to a more than 10-year low against the U.S. dollar and after investors learned that the ISM nonmanufacturing index fell to 53.7 in July—indicating a slowdown in growth. Tech heavyweights took it on the chin, with Apple declining more than 5% on the day, and the 10-year Treasury yield closed at 1.75%. Markets regained some ground on Tuesday after China intervened to correct the fall of its currency. Blamed on summertime trading volumes, U.S. stocks witnessed a roller-coaster ride on Wednesday as stocks ended the day basically flat after the Dow recovered from a 589-point decline earlier in the day. Central banks in India, Thailand, and New Zealand cut their lending rates overnight, and the 10-year Treasury yield closed the day down at 1.71%. Oil took it on the chin, declining 4.7% to $51.09/bbl.

Exchange-Traded Equity Funds

For the second week in three, equity ETFs witnessed net outflows, handing back a little more than $22.0 billion for the most recent fund-flows week. Authorized participants (APs) were net sellers of domestic equity ETFs (-$16.5 billion), also for the second week in three. Meanwhile, nondomestic equity ETFs witnessed net outflows for the first week in three, handing back $5.5 billion this past week. iShares Core S&P 500 ETF (IVV, +$3.2 billion) and SPDR Gold (GLD, +$1.1 billion) 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, -$13.4 billion) experienced the largest individual net redemptions and Invesco QQQ Trust 1 (QQQ, -$3.6 billion) suffered the second largest net redemptions of the week.

Exchange-Traded Fixed Income Funds

For the first week in 12, taxable fixed income ETFs witnessed net outflows, handing back $5.7 billion. APs were net sellers of corporate high-yield debt ETFs (-$2.5 billion) and government-Treasury ETFs (-$1.6 billion), while being net purchasers of balanced ETFs (+$3 million). iShares Broad U.S. Dollar High Yield Corporate Bond ETF (USHY, +$435 million) and JPMorgan Ultra-Short Income ETF (JPST, +$334 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, -$2.5 billion) and iShares iBoxx $ Investment-Grade Corporate Bond ETF (LQD, -$784 million) handed back the largest individual net redemptions for the week. For the eighth consecutive week, municipal bond ETFs witnessed net inflows, taking in $288 million.

Conventional Equity Funds

For the twenty-fifth consecutive week, conventional fund (ex-ETF) investors were net redeemers of equity funds, withdrawing $3.2 billion. Domestic equity funds, handing back a little less than $3.4 billion, witnessed their twenty-sixth weekly net outflows while posting a 3.32% loss on average for the fund-flows week. Their nondomestic equity fund counterparts, posting a 3.10% loss on average, witnessed their first weekly net inflows in seven (however, they attracted only $186 million this past week). On the domestic equity side, fund investors turned their backs on large-cap funds (-$1.6 billion) and real estate funds (-$790 million), while investors on the nondomestic equity side were net purchasers of international equity funds (+$272 million).

Conventional Fixed Income Funds

For the seventh week in eight, taxable bond funds (ex-ETFs) witnessed net inflows, taking in some $2.7 billion this past week while posting a 0.01% loss for the fund-flows week. Investors were net purchasers of corporate investment-grade debt funds (+$3.8 billion) and government-mortgage funds (+$286 million), while high yield funds (-$1.6 billion) and balanced funds (-$137 million) witnessed the largest net inflows of the group. For the thirty-first straight week, municipal bond funds (ex-ETFs) witnessed net inflows—taking in $2.1 billion, their largest weekly net inflow on record dating back to 1992—while posting a 0.81% gain on average for their eighth weekly market gain.


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