January 23, 2020

U.S. Weekly FundFlows Insight Report: Investors Sour on Equity Funds as APs Pump Money into Equity and Bond ETFs

by Tom Roseen.

For the fifth week running, investors were overall net purchasers of fund assets (including those of conventional funds and ETFs), injecting $11.7 billion for Lipper’s fund-flows week ended January 22, 2020. Fund investors were net purchasers of taxable fixed income funds (+$8.4 billion), municipal bond funds (+$2.0 billion), money market funds (+$1.2 billion), and equity funds (+$69 million) this week.

Market Wrap-Up

For the Martin Luther King Jr. Day-shortened fund-flows week ended January 22, 2020, investors cheered a bevy of positive news which included the signing of the Sino-American phase-one trade agreement; Congress passing a revised trade deal between the U.S., Canada, and Mexico; a better-than-expected start to the Q4 earnings season; and strong economic reports. During the fund-flows week, all three broadly followed U.S. indices set new record closes at various times. The NASDAQ Composite Price Only Index (+1.35%) 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 (+0.99%), while the Russell 2000 Price Only Index (+0.12%) was the relative laggard. Overseas, the Nikkei 225 Price Only Index (+0.56%) posted the only plus-side returns of the often-followed broad-based global indices, while the Shanghai Composite Price Only Index (-1.15%) suffered the largest declines.

On Thursday, January 16, all three major U.S. stock market indices set new record closes on the day following the signing of a trade agreement between the U.S. and China, and after the Senate approved a trade deal between the U.S., Mexico, and Canada. Markets also got a shot in the arm after investors learned Morgan Stanley reported Q4 earnings and sales that beat analysts’ expectations. On Friday, January 17, stocks once again closed at record highs after sentiment was boosted by a report that the U.S. December housing starts rose 16.9%, its fastest pace since 2006. Investors appeared to shrug off the news that December U.S. industrial production fell by 0.3% and that capacity utilization fell to 77%.

The U.S. markets were closed on Monday, January 21, in observance of the Martin Luther King Jr. holiday. On Tuesday, U.S. stocks suffered their first decline in five days after investors learned the first reported case of the coronavirus was confirmed within the U.S., and after the International Monetary Fund downgraded its 2020 global economic forecast from a 3.4% to a 3.3% growth rate on Monday.  Nonetheless, on Wednesday, January 22, stocks closed up on good Q4 earnings reports from the likes of IBM, news that previously owned home sales surged almost 4% in December, and after it was revealed that Chinese authorities were taking steps to contain the spread of the coronavirus.

Exchange-Traded Equity Funds

For the fifth week in a row, equity ETFs witnessed net inflows, attracting $2.0 billion for the most recent fund-flows week. Authorized participants (APs) were net purchasers of domestic equity ETFs (however, taking in just $200 million) for the fourth consecutive week of net inflows. Meanwhile, nondomestic equity ETFs witnessed net inflows for the fifth week running, taking in $1.8 billion this past week. iShares ESG MSCI USA ETF (ESGU, +$1.6 billion) and iShares ESF MSCI EM ETF (ESGE, +$1.2 billion) 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, -$2.9 billion) experienced the largest individual net redemptions, and Invesco QQQ Trust 1 (QQQ, -$2.5 billion) suffered the second largest net redemptions of the week.

Exchange-Traded Fixed Income Funds

For the seventh consecutive week, taxable fixed income ETFs witnessed net inflows, taking in $3.0 billion. APs were net purchasers of corporate investment-grade debt ETFs (+$1.0 billion) and government-mortgage ETFs (+$773 million). iShares MBS ETF (MBB, +$682 million) and iShares 0-5 Year High Yield Corporate Bond ETF (SHYG, +$554 million) attracted the largest amounts of net new money of all individual taxable fixed income ETFs. Meanwhile, SPDR Bloomberg Barclays Hight Yield Bond ETF (JNK, -$726 million) and VanEck Vectors JP Morgan Emerging Markets Local Currency Bond ETF (EMLC, -$238 million) handed back the largest individual net redemptions for the week. For the sixteenth week in a row, municipal bond ETFs witnessed net inflows, but took in just $62 million this week.

Conventional Equity Funds

For the forty-fourth consecutive week, conventional fund (ex-ETF) investors were net redeemers of equity funds, withdrawing $1.9 billion. Domestic equity funds, handing back a little more than $3.1 billion, witnessed their fourth weekly net outflows while posting a 0.76% return on average for the fund-flows week. Their nondomestic equity fund counterparts, posting a 0.08% gain on average, witnessed their first week of net inflows in 10, taking in $1.2 billion this past week. On the domestic equity side, fund investors continued to shun large-cap funds (-$2.0 billion) and small-cap funds (-$707 million), while investors on the nondomestic equity side were net purchasers of international equity funds (+$1.3 billion) but remained net redeemers of global equity funds (-$108 million).

Conventional Fixed Income Funds

For the third consecutive week, taxable bond funds (ex-ETFs) witnessed net inflows, attracting some $5.4 billion this past week, while posting a 0.21% return for the fund-flows week. Investors were net purchasers of corporate investment-grade debt funds (+$3.1 billion) and flexible funds (+$1.2 billion), while government-Treasury funds (-$180 million) witnessed the only net outflows of the group. For the fifty-fifth straight week, municipal bond funds (ex-ETFs) witnessed net inflows—taking in $1.9 billion— while posting a 0.19% gain on average for their fourth straight weekly market gain.

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