November 21, 2019

U.S. Weekly FundFlows Insight Report: APs and Fund Investors Turn to Bond Funds During the Week

by Tom Roseen.

For the first week in 12, investors were overall net redeemers of fund assets (including those of conventional funds and ETFs), withdrawing $13.7 billion for Lipper’s fund-flows week ended November 20, 2019. Once again, fund investors were net purchasers of taxable fixed income funds (+$12.4 billion, their largest weekly net inflows since February 4, 2015) and municipal bond funds (+$2.0 billion). However, they were net redeemers of money market funds (-$25.3 billion, their largest weekly outflows since April 17, 2019) and equity funds (-$2.8 billion) this week.

Market Wrap-Up

For the fund-flows week ended November 20, 2019, investors remained generally hopeful over a phase-one Sino-American trade agreement. This optimism contrasted with news about mixed economic news and confirmation from the Federal Reserve’s October Federal Open Market Committee meeting minutes that more interest rate cuts are unlikely in the near term. During the fund-flows week, all three broadly followed U.S. indices witnessed record closes in anticipation of a China/U.S. partial trade agreement being passed this year. The NASDAQ Composite Price Only Index (+0.53%) posted the strongest returns of the broadly followed U.S indices for the fund-flows week, followed by the S&P 500 Price Only Index (+0.47%), while the Dow Jones Industrial Average Price Only Index (+0.13%) was the relative laggard. Overseas, the Xetra DAX Total Return Index (-0.03%) mitigated losses better than the other often followed broad-based global indices. The FTSE 100 Price Only Index (-0.65%) and the Nikkei 225 Price Only Index (-0.65%) posted the largest declines of the subgroup for the fund-flows week.

The S&P 500 Index closed at a record high on Thursday, November 14, as investors cheered an imminent U.S./China trade deal. However, worries over international trade uncertainty, Hong Kong protests, and Brexit weighed on the other indices. First-time unemployment claims rose to a nearly five-month high for the week ended November 9. On Friday, November 15, the Dow closed above the 28,000 mark for the first time and the S&P 500 rallied for a sixth consecutive week as investors remained hopeful that the U.S./China trade deal will justify recent market highs. While U.S. October industrial output declined by the most in 17 months—worse than analyst expectations—October retail sales rose 0.3%, beating expectations.

On Monday, November 18, all three major U.S. stock indices closed higher on the day, with the Dow posting another record close as optimism that a limited, phase-one trade deal between the U.S. and China will be completed soon. Upside gains were capped, however, by news that the government in Beijing remained pessimistic that the deal will be completed and anti-government protests continued in Hong Kong. However, China’s central bank lowered the interest rate on its reverse repurchase open market operations to reenergize market confidence. On Tuesday, the NASDAQ closed at another record high, but doubts about the China trade deal and slowing economic growth in the U.S. weighed on the Dow and S&P 500 indices. On Wednesday, stocks generally ended lower on a report that the phase-one deal may not be completed this year. Investors also digested the minutes from the Fed’s interest rate setting committee which indicated the Fed is unlikely to change interest rates soon.

Exchange-Traded Equity Funds

For the sixth week in a row, equity ETFs witnessed net inflows, attracting $898 million for the most recent fund-flows week. Authorized participants (APs) were net redeemers of domestic equity ETFs (-$1.4 billion) for the first week in four. Meanwhile, nondomestic equity ETFs witnessed net inflows for the eighth week running—taking in $2.3 billion this past week. iShares Edge MSCI USA Size Factor ETF (SIZE, +$897 million) and iShares Core MSCI EAFE ETF (IEFA, +$724 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, -$1.9 billion) experienced the largest individual net redemptions, and Consumer Discretionary Select Sector SPDR ETF (XLY, -$673 million) suffered the second largest net redemptions of the week.

Exchange-Traded Fixed Income Funds

For the first week in three, taxable fixed income ETFs witnessed net inflows, taking in $2.3 billion. APs were net purchasers of corporate investment-grade debt ETFs (+$1.3 billion) and government-Treasury ETFs (+$509 million) while being net redeemers of international & global debt ETFs (-$92 million) and corporate high-yield ETFs (-$12 million). iShares Core 1-5 Year USD Bond ETF (ISTB, +$438 million) and iShares Core US Aggregate Bond ETF (AGG, +$246 million) attracted the largest amounts of net new money of all individual taxable fixed income ETFs. Meanwhile, SPDR Bloomberg Barclay Investment Grade Floating Rate ETF (FLRN, -$160 million) and SPDR Portfolio Intermediate Term Corporate Bond ETF (SPIB, -$152 million) handed back the largest individual net redemptions for the week. For the seventh week in a row, municipal bond ETFs witnessed net inflows, taking in $368 million.

Conventional Equity Funds

For the fortieth consecutive week, conventional fund (ex-ETF) investors were net redeemers of equity funds, withdrawing $3.7 billion. Domestic equity funds, handing back a little less than $2.3 billion, witnessed their forty-first weekly net outflows while posting a 0.75% return on average for the fund-flows week. Their nondomestic equity fund counterparts, posting a 0.40% gain on average, witnessed their thirteenth week of net outflows in 14, handing back some $1.4 billion this past week. On the domestic equity side, fund investors turned their backs on large-cap funds (-$2.0 billion) and real estate funds (-$194 million), while investors on the nondomestic equity side were net sellers of international equity funds (-$543 billion) and global equity funds (-$874 million).

Conventional Fixed Income Funds

For the seventh consecutive week, taxable bond funds (ex-ETFs) witnessed net inflows, attracting some $10.1 billion this past week (their largest weekly net inflows on record) while posting a 0.33% return for the fund-flows week. Investors were net purchasers of flexible funds (+$5.4 billion) and corporate investment-grade debt funds (+$3.8 billion), while balanced funds (+$32 million) witnessed the smallest net inflows of the group. For the forty-sixth straight week, municipal bond funds (ex-ETFs) witnessed net inflows—taking in $1.6 billion—while posting a 0.34% gain on average for their second weekly market gain in three.

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