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October 3, 2019

Lipper U.S. Weekly FundFlows Insight Report: Funds Post Net Inflows for the Fifth Consecutive Week

by Pat Keon, CFA.

Lipper’s fund asset groups (including both mutual funds and exchange-traded funds) took in net new money for the fifth straight week, with positive net flows of $1.1 billion for the fund-flows trading week ended Wednesday, October 2. Money market funds paced the net inflows (+$7.4 billion), while municipal bond funds and taxable bond funds contributed $884 million and $641 million, respectively, to the total intake. Equity funds were the only asset group to suffer net outflows for the week as $7.9 billion left their coffers.

Market Overview

The equity markets started off the fourth quarter on a sour note as they suffered steep losses for the fund-flows trading week. The NASDAQ Composite Index, Dow Jones Industrial Average, and the S&P 500 Index were off 3.62%, 3.31%, and 3.26%, respectively, with the lion’s share of the losses for each coming during the first two trading days of Q4. The release of troubling economic data on back-to-back days (October 1 and 2) raised concerns that the ongoing U.S./China trade war is starting to be felt by the U.S. economy. First, the Institute for Supply Management released a report indicating that U.S. manufacturing activity fell to its lowest point (47.8) in more than 10 years (June 2009) in September. Economists had forecast a small increase (1.0 points, from 49.1 to 50.1) for the measure, but it instead fell 1.3 points. The next day, ADP released data illustrating that hiring had slowed in September. Private companies added 135,000 jobs to their payrolls for the month, which was down from the 157,000 increase in August. Adding insult to injury, the August number (157,000) was revised downward from its originally reported addition of 195,000 jobs.

ETFs

ETFs (-$123 million) had overall net outflows for the second straight week driven by equity ETFs, which had net negative flows of $822 million. The net outflows for the equity ETF asset group were driven by iShares Russell 2000 ETF (IWM, -$1.5 billion) and the Energy Select Sector SPDR ETF (XLE, -$510 million). Conversely, taxable bond ETFs took in $721 million in net new money. The most significant net inflows among taxable bond ETFs were attributable to iShares 3-7 Year Treasury Bond ETF (IEI, +$457 million) and iShares Intermediate-Term Corporate Bond ETF (IGIB, +$370 million).

Equity Mutual Funds

Equity mutual funds (-$7.0 billion) had net outflows for the thirty-third straight week. Both domestic equity funds (-$5.4 billion) and nondomestic equity funds (-$1.6 billion) contributed to this week’s net outflows. The largest net negative flows in the two regions belonged to Large-Cap Core Funds (-$902 million) and International Multi-Cap Core Funds (-$523 million).

Fixed Income Mutual Funds

Municipal debt funds (+$905 million) extended their streak of weekly net inflows to 39, while taxable bond funds (-$80 million) had net outflows for the second consecutive week. The national muni debt peer groups paced the net inflows as General Muni Debt Funds (+$283 million), Intermediate Muni Debt Funds (+$220 million), and High Yield Muni Debt Funds (+$213 million) all took in significant amounts of net new money. On the taxable side of the ledger, the Ultra-Short Obligation Funds peer group suffered its second-worst weekly net outflow (-$925 million) in its history (Lipper started tracking this data in 1992), trailing only the $1.1 billion net negative flow for the fund-flows week ended August 22, 2007. The lion’s share of this week’s net outflows is concentrated in two funds, Morgan Stanley Ultra-Short Income Portfolio (-$862 million) and the Virtus Seix U.S. Government Securities Ultra-Short Bond Fund (-$331 million).

Money Market Mutual Funds

Money market funds took in $7.4 billion in net new money for the week. The net inflows were driven by the U.S. Government Money Market Funds (+$7.3 billion) and Institutional U.S. Treasury Money Market Funds (+$3.5 billion), while the Institutional U.S. Government Money Market Funds and Institutional Money Market Funds peer groups saw $3.5 billion and $3.1 billion leave their coffers, respectively.

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