by Pat Keon, CFA.
Lipper’s fund asset groups (including both mutual funds and exchange-traded funds) recorded net inflows of $30.4 billion for the fund-flows trading week ended Wednesday, October 30. This was the ninth straight weekly net positive flows for funds as all four asset groups contributed to the total net inflows, led by money market funds (+$23.5 billion). Taxable bond funds, municipal bond funds, and equity funds were responsible for $5.1 billion, $1.2 billion, and $633 million, respectively, of the week’s total net positive flows.
Equity markets posted gains for the fund-flows trading week thanks to continued strength from the quarterly corporate earnings results season, optimism about the U.S./China trade talks, and the Federal Reserve cutting interest rates another 25 basis points (bps) as expected. For the week, the NASDAQ Composite Index, S&P 500 Index, and the Dow Jones Industrial Average were up 2.27%, 1.41%, and 1.31%, respectively. All three of these indices are also in the black for the quarter and year to date. The NASDAQ has appreciated 25.15% so far this year (and 3.81% for the quarter), followed by the S&P 500 and the Dow, which have gained 21.54% and 16.54%, respectively, for the year to date and 2.35% and 1.00%, respectively, during the fourth quarter. As anticipated, the Fed reduced interest rates for the third time this year at its Federal Open Market Committee meeting on Wednesday, October 30. This action dropped the federal funds rate to the 1.50% to 1.75% range, but the Fed’s post-meeting statement seemed to indicate that there would be a higher standard for any future rate cuts. This was inferred by a change in language in the Fed’s policy statement. The policy statements after the last three meetings included language stating that the Fed’s actions would be for the purpose of extending the current economic expansion for as long as possible. That statement was removed from the current policy statement and replaced with language indicating that the Fed would monitor the incoming economic data and forecast to determine its appropriate target rate.
ETFs took in $7.4 billion in net new money driven by significant increases from the taxable bond ETF and equity ETF groups. The taxable bond group grew its coffers by $3.7 billion (their sixth straight weekly increase), with the largest individual net inflows belonging to iShares iBoxx $ High Yield Corporate Bond ETF (HYG, +$523 million) and Schwab Short-Term U.S. Treasury ETF (SCHO, +$374 million). Equity ETFs recorded their third straight weekly increase (+$3.5 billion), driven by SPDR S&P Dividend ETF (SDY, +$1.4 billion) and Invesco QQQ Trust 1 (QQQ, +$985 million). Muni bond ETFs also contributed to the total net inflows as they took in $240 million in net new money for the week.
Equity Mutual Funds
Equity mutual funds (-$2.9 billion) had investors take net money out for the thirty-seventh consecutive week. During this time period, the group has seen its coffers shrink by almost $188 billion. The group is on pace to have its second worst annual net outflows ever (Lipper started tracking this data in 1992), trailing only the $258.4 billion in outflows in 2016. This week’s net negative flows were attributable to both nondomestic equity funds (-$2.0 billion) and domestic equity funds (-$891 million). The largest net outflows in the two regions belonged to the International Multi-Cap Growth Funds (-$376 million) and Multi-Cap Core Funds (-$604 million) peer groups.
Fixed Income Mutual Funds
Municipal debt funds (+$922 million) extended their streak of net inflows to 43 weeks, while taxable bond funds (+$1.5 billion) grew their own streak to four weeks. The General Muni Debt Funds (+$655 million) and High Yield Muni Debt Funds (+$365 million) peer groups paced the tax-exempt net inflows, while Short Investment-Grade Debt Funds (+$1.3 billion) outdistanced all the other taxable bond peer groups.
Money Market Mutual Funds
Money market funds (+$23.5 billion) paced the net inflows among the fund asset groups. The lion’s share of the group’s net positive flows emanated from the Institutional U.S. Government Money Market Funds (+$23.7 billion) peer group while, conversely, the Institutional Money Market Funds (-$1.0 billion) and U.S. Government Money Market Funds (-$943 million) groups both saw money leave.