September 5, 2019

U.S. Weekly FundFlows Insight Report: Fund Investors and APs Remain Guarded During the Week, Turning to Safe-Haven Plays for Solace

by Tom Roseen.

For the fourth week in five, investors were overall net purchasers of fund assets (including those of conventional funds and ETFs), injecting $13.3 billion for Lipper’s fund-flows week ended September 4, 2019. Fund investors were net purchasers of money market funds (+$12.2 billion), taxable fixed income funds (+$3.0 billion), and municipal bond funds (+$820 million). However, they were net redeemers of equity funds (-$2.8 billion).

Market Wrap-Up

For the fund-flows week ended September 4, 2019, stocks managed to eke out plus-side returns despite wild swings in the market. While keeping a keen eye on the U.S./China trade war, a new direction for Brexit, and the first signs of manufacturing contraction in the U.S., investors appeared to embrace anecdotal news from the Federal Reserve’s Beige Book that the nonfinancial services sector was expanding modestly and that China wasn’t in a rush to respond to the newly implemented U.S. trade tariffs. The S&P 500 Price Only Index (+1.73%) witnessed the strongest return of the broadly followed U.S indices for the fund-flows week, followed by the NASDAQ Composite Price Only Index (+1.53%) and the Dow Jones Industrial Average Price Only Index (+1.23%). Overseas, the Nikkei 225 Price Only Index posted the weakest returns of the subgroup, rising 0.55% for the week, while the FTSE 100 Price Only Index (+2.53%) posted the strongest weekly returns of the other oft followed broad-based global indices.

On Thursday, August 29, stocks started the week with a bang. The Dow gained more than 300 points as China helped ease fears of a further tit-for-tat escalation of the trade war. A spokesperson for China’s commerce ministry said the country wouldn’t immediately respond to President Donald Trump’s recent tariff increases. While a revision to the U.S. second quarter GDP growth came in lower than the previously reported 2.1%, investors appeared to focus on a better-than-expected increase in personal consumption from the same report. On Friday, stocks finished the day out mostly higher after China’s foreign ministry said Chinese and U.S. negotiators were maintaining effective communication. Worries over the economic outlook, however, still pushed the two-and 10-year Treasury spread into negative territory. An inverted Treasury curve is often thought to be an indicator of near-term recession.

The U.S markets were closed on Monday, September 2, in observation of Labor Day. However, on Tuesday, markets were pummeled once again after investors learned that a measure of manufacturing activity entered contraction territory for the first month since January 2016. The August ISM Purchasing Manager’s Index (PMI) declined to 49.1. Readings below 50 are considered contractionary. In addition, investors ducked for cover after the U.S. launched a new round of tariffs on $112 billion of Chinese goods during the weekend, while China instituted new tariffs on its own. Adding to the mayhem, the United Kingdom’s new Prime Minister Boris Johnson threatened a snap election if Parliament successfully blocks the so-called no-deal exit from the EU. However, on Wednesday, September 4, stocks got a shot in the arm as geopolitical concerns waned and the Beige Book signaled modest expansion. The Bank of China indicated its willingness to use both monetary and fiscal stimulus to prop up its economy. In addition, the U.K parliament late on Tuesday took steps to prevent a no-deal exit form the EU, as lawmakers voted to take control of the Brexit agenda, pushing Johnson to call for a snap election.

Exchange-Traded Equity Funds

For the first week in three, equity ETFs witnessed net inflows, but attracted only slightly more than $520 million for the most recent fund-flows week. Authorized participants (APs) were net purchasers of domestic equity ETFs (+$834 million) for the second consecutive week. Meanwhile, nondomestic equity ETFs witnessed net outflows for the sixth week running, handing back $314 million this past week. Industrial Select Sector SPDR ETF (XLI, +$761 million) and SPDR Gold (GLD, +$671 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, -$1.4 billion) experienced the largest individual net redemptions, and iShares Russell 2000 ETF (IWM, -$754 million) suffered the second largest net redemptions of the week.

Exchange-Traded Fixed Income Funds

For the fourth week in a row, taxable fixed income ETFs witnessed net inflows, taking in $2.2 billion. APs were net purchasers of government-Treasury ETFs (+$2.1 billion) and flexible ETFs (+$517 million), while being net redeemers of corporate high yield ETFs (+$302 million) and government-mortgage ETFs (-$91 million). iShares 20+ Year Treasury Bond ETF (TLT, +$987 million) and iShares 7-10 Year Treasury Bond ETF (IEF, +$906 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, -$662 million) and iShares Short Treasury Bond ETF (SHV, -$431 million) handed back the largest individual net redemptions for the week. For the twelfth consecutive week, municipal bond ETFs witnessed net inflows, taking in $44 million.

Conventional Equity Funds

For the twenty-ninth consecutive week, conventional fund (ex-ETF) investors were net redeemers of equity funds, withdrawing $3.3 billion. Domestic equity funds, handing back a little less than $2.5 billion, witnessed their thirtieth weekly net outflows while posting a 1.57% return on average for the fund-flows week. Their nondomestic equity fund counterparts, posting a 2.08% gain on average, witnessed their third consecutive week of net outflows, handing back some $816 million this past week. On the domestic equity side, fund investors turned their backs on large-cap funds (-$1.5 billion) and small-cap funds (-$1.3 billion), while investors on the nondomestic equity side were net sellers of international equity funds (-$893 million) and global equity funds (-$236 million).

Conventional Fixed Income Funds

For the fifth consecutive week, taxable bond funds (ex-ETFs) witnessed net inflows, taking in some $774 million this past week while posting a 0.57% gain for the fund-flows week. Investors were net purchasers of government-Treasury funds (+$2.0 billion) and corporate investment-grade debt funds (+$1.2 billion), while high yield funds (-$319 million) and international & global debt funds (-$303 million) witnessed the largest net outflows of the group. For the thirty-fifth straight week, municipal bond funds (ex-ETFs) witnessed net inflows—taking in $776 million—while posting a 0.14% gain on average for their second weekly market gain in a row.

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