February 20, 2020

U.S. Weekly FundFlows Insight Report: Investors Prefer Bond Funds and ETFs During the Week

by Tom Roseen.

For the third week in row, investors were overall net purchasers of fund assets (including those of conventional funds and ETFs), injecting $13.9 billion for Lipper’s fund-flows week ended February 19, 2020. Fund investors were net purchasers of taxable fixed income funds (+$7.9 billion), money market funds (+$6.3 billion), and municipal bond funds (+$1.8 billion), but they were net redeemers of equity funds (-$2.0 billion) this week.

Market Wrap-Up

For the Presidents’ Day shortened fund-flows week ended February 19, 2020, investors generally pushed the U.S. market higher while keeping a keen eye on the deadly coronavirus, focusing on Q4 corporate earnings and healthy economic data. All three broadly followed U.S. indices witnessed market declines at the beginning of the fund-flows week on renewed coronavirus fears, but the NASDAQ and S&P 500 indices both posted multi-day record closes during the remainder of the week. The NASDAQ Composite Price Only Index (+0.94%) posted the strongest return of the broadly followed U.S. indices for the fund-flows week, followed by the S&P 500 Price Only Index (+0.20%), while the Dow Jones Industrial Average Price Only Index (-0.84%) posted the only negative return of the group after Apple issued a Q2 earnings warning related to the coronavirus. Overseas, the Shanghai Composite Price Only Index (+1.35%) posted the only plus-side return of the often-followed broad-based global indices, while the Nikkei 225 Price Only Index (-2.76%) suffered the largest decline.

On Thursday, February 13, all three major U.S. stock market indices closed lower on the day after news there were 15,152 new cases of the coronavirus in China. The increase was caused by a one-off change in methodology of diagnosing COVID-19 cases by the government. U.S. stocks might have also been impacted by news that January consumer prices rose modestly and initial jobless claims for the week ended February 8 edged up by 2,000. However, on Friday, February 14, the NASDAQ and S&P 500 both closed at record highs after reports that February consumer confidence was near a 15-year high. Investors appeared to shrug off news that U.S. January industrial production suffered its fourth monthly decline in five and retail sales came in weaker than expected. Oil prices moved higher, with West Texas Intermediate crude witnessing its first weekly gain in six.

The U.S. markets were closed on Monday, February 17, in observance of the Presidents’ Day holiday.  On Tuesday, the NASDAQ clawed out another record close while the other stock market indices closed lower on renewed concerns of global slowing from the coronavirus after Apple warned its Q2 earnings might take a hit—the deadly virus outbreak in China is impacting its suppliers’ production. Gold closed on the day at its highest finish since March 2013 as investors bid up safe-haven instruments. On Wednesday, February 19, the NASDAQ and the S&P 500 closed at record highs again after minutes from the Federal Reserve Board’s January Federal Open Market Committee meeting showed Fed officials believed the US economy late in January appeared stronger than expected, although it would be keeping an eye on the possible impacts from the coronavirus outbreak and tensions in the Middle East. Oil prices took a big jump on the day after the Trump Administration sanctioned Russian oil giant Rosneft.

Exchange-Traded Equity Funds

For the third consecutive week, equity ETFs witnessed net inflows, but attracted just $777 million for the most recent fund-flows week. Authorized participants (APs) were net purchasers of domestic equity ETFs (which took in $363 million), also for the third week of net inflows. Meanwhile, nondomestic equity ETFs witnessed net inflows, taking in $414 million this past week. Invesco QQQ Trust 1 ETF (QQQ, +$735 million) and SPDR Portfolio S&P 500 ETF (SPLG, +$690 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, -$3.2 billion) experienced the largest individual net redemptions, and JPMorgan BetaBuilders Japan ETF (BBJP, -$733 million) suffered the second largest net redemptions of the week.

Exchange-Traded Fixed Income Funds

For the third week in a row, taxable fixed income ETFs witnessed net inflows, taking in $2.6 billion. APs were net purchasers of corporate investment-grade debt ETFs (+$1.0 billion) and government-mortgage ETFs (+$791 million), while being net redeemers of corporate high-yield CEFs (-$388 million). SPDR Portfolio Mortgage Backed Bond ETF (SPMB, +$752 million) and iShares Core US Aggregate Bond ETF (AGG, +$506 million) attracted the largest amounts of net new money of all individual taxable fixed income ETFs. Meanwhile, SPDR Bloomberg Barclays High Yield Bond ETF (JNK, -$771 million) and iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD, -$446 million) handed back the largest individual net redemptions for the week. For the twentieth week in a row, municipal bond ETFs witnessed net inflows, taking in $180 million this week.

Conventional Equity Funds

For the forty-eighth consecutive week, conventional fund (ex-ETF) investors were net redeemers of equity funds, withdrawing $2.8 billion. Domestic equity funds, handing back a little less than $3.0 billion, witnessed their eighth weekly net outflows while posting a 0.46% return on average for the fund-flows week. Their nondomestic equity fund counterparts, posting a 0.44% loss on average, witnessed their fourth weekly net inflows in five, taking in $214 million this past week. On the domestic equity side, fund investors continued to shun large-cap funds (-$2.3 billion) and small-cap funds (-$374 million), while investors on the nondomestic equity side were net purchasers of international equity funds (+$386 million) but remained net redeemers of global equity funds (-$172 million).

Conventional Fixed Income Funds

For the seventh consecutive week, taxable bond funds (ex-ETFs) witnessed net inflows, attracting some $5.3 billion this past week while posting a 0.13% return for the fund-flows week. Investors were net purchasers of corporate investment-grade debt funds (+$4.1 billion) and flexible funds (+$504 million), while balanced funds (-$84 million) witnessed the only net outflows of the group. For the fifty-ninth straight week, municipal bond funds (ex-ETFs) witnessed net inflows—taking in $1.6 billion—while posting a 0.23% gain on average for their eighth straight weekly market gain.

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