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December 12, 2019

U.S. Weekly FundFlows Insight Report: Fund Investors Take Their Foot Off the Pedal while APs Remain Engaged During the Week

by Tom Roseen.

For the third week running, investors were overall net purchasers of fund assets (including those of conventional funds and ETFs), injecting $38.9 billion for Lipper’s fund-flows week ended December 11, 2019. Fund investors were net purchasers of money market funds (+$39.0 billion), taxable fixed income funds (+$5.6 billion), and municipal bond funds (+$1.6 billion). However, they were net redeemers of equity funds (-$7.1 billion) this week.

Market Wrap-Up

For the fund-flows week ended December 11, 2019, investors kept a keen eye on U.S./China trade discussions, the November nonfarm payrolls report, and the Federal Reserve Board’s policy setting meeting. During the fund-flows week, all three broadly followed U.S. indices remained within striking distance of the recent record closes. The Russell 2000 Price Only Index (+1.12%) 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 (+0.93%), while the NASDAQ Composite Price Only Index (+0.58%) was the relative laggard. Overseas, the Shanghai Composite Price Only Index (+2.06%) posted the strongest returns of the often-followed broad-based global indices, followed by the Nikkei 225 Price Only Index (+1.22%) and the FTSE 100 Price Only Index (+0.91%).

On Thursday, December 5, all three major U.S. stock market indices closed higher on the day as investors remained optimistic that the U.S./China trade deal was still on track despite the December 15 deadline for additional tariffs on $156 billion in Chinese goods if no phase-one deal is achieved. Investors warmed to the news the October U.S. factory orders increased 0.3% and first-time jobless claims at the end of November fell to their lowest levels in seven months. On Friday, December 6, the Dow posted its best one-day advance in more than two months after the November nonfarm payrolls report indicated that the U.S. economy added 266,000 jobs, handily beating analyst expectations of 180,000, and pushing the unemployment rate to 3.5%, matching a 50-year low. Investors also reveled in the news that the University of Michigan’s December consumer sentiment indicator rose to 99.2 from 96.8 in November. Near-month oil prices got a shot in the arm after OPEC and its allies agreed to cut production by 500,000 barrels per day in January on top of its current reduction agreement.

On Monday, December 9, the U.S. stock market snapped a three-day winning streak as the upcoming U.S./China tariff deadline came into focus and on weak economic data out of China. Chinese exports dropped 1.1% in November from a year earlier. On Tuesday, U.S. stocks suffered another day of minor declines ahead of the Fed’s Open Market Committee meeting as investors were digesting mixed signals on trade negotiations, news on the new North American Free Trade Agreement, and questioning how dovish the Fed will be in its announcement. Nonetheless, stocks rebounded slightly on Wednesday after the Fed signaled a go-slow approach to monetary policy, indicating it expected to make no changes to interest rates throughout 2020. Returns remained mooted by uncertainty surrounding the upcoming Sino-American trade deadline and Britain’s general elections.

Exchange-Traded Equity Funds

For the ninth week in a row, equity ETFs witnessed net inflows, attracting $6.2 billion for the most recent fund-flows week. Authorized participants (APs) were net purchasers of domestic equity ETFs (+$5.8 billion) for the third consecutive week. Meanwhile, nondomestic equity ETFs witnessed net inflows for the eleventh week running, though they took in just $340 million this past week. iShares Russell 2000 ETF (IWM, +$1.2 billion) and Invesco QQQ Trust 1 ETF (QQQ, +$1.1 billion) attracted the largest amounts of net new money of all individual equity ETFs. At the other end of the spectrum, Consumer Discretionary Select Sector SPDR ETF (XLY, -$476 million) experienced the largest individual net redemptions, and iShares MSCI Japan ETF (EWJ, -$351 million) suffered the second largest net redemptions of the week.

Exchange-Traded Fixed Income Funds

For the third week in four, taxable fixed income ETFs witnessed net inflows, taking in $2.7 billion. APs were net purchasers of corporate investment-grade debt ETFs (+$1.5 billion) and government-Treasury ETFs (+$738 million) while being net redeemers of flexible ETFs (-$150 million) and international & global debt ETFs (-$67 million). SPDR Bloomberg Barclay High Yield Bond ETF (JNK, +$651 million) and iShares 20+ Year Treasury Bond ETF (TLT, +$603 million) attracted the largest amounts of net new money of all individual taxable fixed income ETFs. Meanwhile, iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD, -$500 million) and iShares iBoxx $ High Yield Corporate Bond ETF (HYG, -$226 million) handed back the largest individual net redemptions for the week. For the tenth week in a row, municipal bond ETFs witnessed net inflows, taking in $159 million.

Conventional Equity Funds

For the forty-third consecutive week, conventional fund (ex-ETF) investors were net redeemers of equity funds, withdrawing $13.3 billion, their largest weekly net redemption since May 29, 2019. Domestic equity funds, handing back a little more than $10.9 billion, witnessed their forty-fourth weekly net outflows while posting a 0.82% return on average for the fund-flows week. Their nondomestic equity fund counterparts, posting a 1.18% gain on average, witnessed their fourth consecutive week of net outflows, handing back some $2.4 billion this past week. On the domestic equity side, fund investors turned their backs on large-cap funds (-$8.0 billion) and small-cap funds (-$992 million), while investors on the nondomestic equity side were net sellers of international equity funds (-$1.3 billion) and global equity funds (-$1.1 billion).

Conventional Fixed Income Funds

For the tenth consecutive week, taxable bond funds (ex-ETFs) witnessed net inflows, attracting some $2.9 billion this past week, while posting a 0.32% return for the fund-flows week. Investors were net purchasers of corporate investment-grade debt funds (+$3.1 billion) and corporate high-yield funds (+$336 million), while balanced funds (-$344 million) witnessed the largest net outflows of the group. For the forty-ninth straight week, municipal bond funds (ex-ETFs) witnessed net inflows—taking in $1.4 billion—while posting a 0.19% gain on average for their fourth straight weekly market gain.

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