by Pat Keon, CFA.
Lipper’s fund asset groups (including both mutual funds and exchange-traded funds) recorded net outflows of $65.8 billion for the fund-flows trading week ended Wednesday, December 18. Equity funds (-$32.2 billion), money market funds (-$30.9 billion), and taxable bond funds (-$4.3 billion) all saw money leave their coffers, while municipal bond funds took in $1.6 billion in net new money.
A significant portion of this week’s net outflows belonged to the equity mutual funds (-$29.2 billion) asset group. We suspect that some of these net outflows are attributable to this group’s downward trend (44 consecutive net outflows), but we believe that a major part of the net negative flows are due to funds going ex-dividend on December 18, causing a temporary one day decrease in total net assets. When a fund goes ex-dividend, the fund’s net assets will fall by the amount of the distribution that day. The assets will then revert back the next day as they are reinvested into the funds. Therefore, we would expect to see net inflows back into these equity mutual funds on December 19 representing the reinvestment of the distributions.
For the second consecutive fund-flows trading week, all of the major equity indices posted gains. The NASDAQ Composite Index, the S&P 500 Index, and the Dow Jones Industrial Average rose 2.01%, 1.58%, and 1.18%, respectively, this week. Each index is positioned to record very impressive annual increases as the year winds down, with the NASDAQ, S&P 500, and the Dow up 33.04%, 27.30%, and 21.06%, respectively, for the year to date as of the close of business December 18. The equity indices captured the lion’s share of their gains this week during trading on Thursday and Monday, as once again the markets were driven by news about the U.S./China trade dispute. The week started with the U.S. announcing that it had reached a “deal in principle” with China that would put to rest the 17 months of trade tensions between the two nations. The White House jawboned the markets again later in the week as Larry Kudlow, an economic advisor to President Donald Trump, stated that a phase one deal had been reached and was expected to be signed during the first week of the new year.
ETFs had overall net outflows of $1.9 billion for the fund-flows trading week which were driven by equity ETFs (-$3.0 billion). The largest individual net negative flows among equity ETFs belonged to iShares Core S&P 500 ETF (IVV) and the SPDR Select Financial ETF (XLF), which saw $2.8 billion and $590 million leave. Taxable bond ETFs (+$983 million) and municipal bond ETFs (+$136 million) both took in net new money on the week. The most significant positive net flows for each of those two groups were attributable to SPDR Bloomberg Barclays High Yield Bond ETF (JNK) and the iShares Short Term National Muni Bond ETF (SUB) at $527 million and $37 million, respectively.
Fixed Income Mutual Funds
Municipal debt funds (+$1.4 billion) took in net new money for the fiftieth straight week, while taxable bond funds had $5.3 billion leave their coffers, which broke a run of 10 consecutive net inflows. The largest net inflows among the tax-exempt peer groups belonged to General Muni Debt Funds (+$530 million), High Yield Muni Debt Funds (+$399 million), and Intermediate Muni Debt Funds (+$271 million). On the taxable bond fund side of things, the Core Plus Bond Funds (-$1.5 billion) peer group had the largest individual net outflow.
Money Market Mutual Funds
Money market funds suffered net outflows of $30.9 billion for the fund-flows trading week. These net negative flows were driven by the Institutional U.S. Government Money Market Funds (-$22.4 billion) and Institutional Money Market Funds (-$8.2 billion) peer groups.