February 6, 2020

U.S. Weekly FundFlows Insight Report: Investors Spurn Equity Funds as APs Embrace Equity, Bond ETFs

by Tom Roseen.

For the sixth week in seven, investors were overall net purchasers of fund assets (including those of conventional funds and ETFs), injecting $3.9 billion for Lipper’s fund-flows week ended February 5, 2020. Fund investors were net purchasers of taxable fixed income funds (+$7.0 billion), equity funds (+$3.4 billion), and municipal bond funds (+$1.6 billion), but were net redeemers of money market funds (-$8.1 billion) this week.

Market Wrap-Up

For the fund-flows week ended February 5, 2020, investors cautiously turned their attention away from the deadly coronavirus and focused on rumors of a potential vaccine and better-than-expected economic and Q4 corporate earnings news. All three broadly followed U.S. indices witnessed whipsaw movements in their values during the fund-flows week, but ended up posting new record closes at the end of the week. The NASDAQ Composite Price Only Index (+2.52%) posted the strongest returns of the broadly followed U.S. indices for the fund-flows week, followed by the Russell 2000 Price Only Index (+1.98%), while the S&P 500 Price Only Index (+1.87%) was the relative laggard. Overseas, the Xetra DAX Total Return Index (+1.03%) posted the only plus-side returns of the often-followed broad-based global indices, while the Shanghai Composite Price Only Index (-6.27%) suffered the largest declines.

On Thursday, January 30, all three major U.S. stock market indices closed higher on the day despite the World Heath Organization declaring the coronavirus a public emergency (but expressing confidence in China’s response to the illness). U.S. stocks rallied at the end of the day on a wave of positive Q4 earnings reports from companies such as Coca Cola and Microsoft. However, as might be expected given the possible impacts of a pandemic, near-month gold prices rallied on safe-haven demand. On Friday, January 31, stocks were pummeled after President Donald Trump declared a public health emergency for the coronavirus epidemic, with the Dow and S&P 500 indices recording their largest one-day decline since August. The yield on the 10-year Treasury note slipped to 1.51%—its lowest close since September 4, 2019—dropping below the three-month Treasury bill rate of 1.55% as investors began to evaluate the possible impacts the spread of the coronavirus might have on the global community and trade. In addition, the price of near-month crude oil continued its decline as data earlier in the week showed a rise in U.S. crude inventories.

On Monday, February 3, stocks began to claw their way back as investors turned their focus to positive data while keeping a keen eye on China’s stock exchange, with the Shanghai Composite declining 7.7% on the day in its first day of trading after the observance of the Lunar New Year. Investors cheered the People’s Bank of China (PBOC) injecting $174 billion into the economy to quell the related economic downturn and a report that the January ISM purchasing manager’s index rose to a six-month high of 50.9%. Oil prices settled at a one-year low of $50.11/bbl. On Tuesday, U.S. stocks rocketed to new closing highs after the PBOC provided additional stimulus to its market to combat the economic impact of the deadly virus and after investors learned the Department of Commerce said December factory orders rose 1.8%, beating analysts’ expectations of a 1.5% rise. The 10-year Treasury yield experienced its largest one-day rise since December 12, closing at 1.60%, but near-month crude oil continued its spiral, closing at $49.61/bbl. Asian stocks rose significantly on the day. On Wednesday, February 5, the S&P and NASDAQ both closed at record highs as fear over the coronavirus began to ease on rumors of a vaccine being developed, Q4 earnings reports showed an average 0.1% rise compared to an analyst-expected 2.0% decline, and the January ISM purchasing manager’s survey showed the service sector grew at its fastest pace in six months.

Exchange-Traded Equity Funds

For the sixth week in seven, equity ETFs witnessed net inflows, attracting $6.3 billion for the most recent fund-flows week. Authorized participants (APs) were net purchasers of domestic equity ETFs (taking in $5.7 billion) for the fifth week of net inflows in six. Meanwhile, nondomestic equity ETFs witnessed net inflows for the sixth week in seven, taking in $562 million this past week. iShares Core S&P 500 ETF (IVV, +$7.4 billion) and Invesco Russell 1000 Dynamic Multifactor ETF (OMFL, +$931 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, -$1.8 billion) experienced the largest individual net redemptions, and Financial Select Sector SPDR ETF (XLF, -$1.2 billion) suffered the second largest net redemptions of the week.

Exchange-Traded Fixed Income Funds

For the eighth week in nine, taxable fixed income ETFs witnessed net inflows, taking in $2.9 billion. APs were net purchasers of corporate investment-grade debt ETFs (+$1.4 billion) and government-Treasury ETFs (+$1.1 billion), while being net redeemers of corporate high-yield CEFs (-$429 million) and international & global income ETFs (-$335 million). iShares Broad USD High Yield Corporate Bond ETF (USHY, +$740 million) and iShares Core US Aggregate Bond ETF (AGG, +$666 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, -$875 million) and Invesco Senior Loan ETF (BKLN, -$263 million) handed back the largest individual net redemptions for the week. For the eighteenth week in a row, municipal bond ETFs witnessed net inflows, taking in $139 million this week.

Conventional Equity Funds

For the forty-sixth consecutive week, conventional fund (ex-ETF) investors were net redeemers of equity funds, withdrawing $2.9 billion. Domestic equity funds, handing back a little more than $3.8 billion, witnessed their sixth weekly net outflows while posting a 1.72% return on average for the fund-flows week. Their nondomestic equity fund counterparts, posting a 0.77% gain on average, witnessed their third consecutive week of net inflows, taking in $908 million this past week. On the domestic equity side, fund investors continued to shun large-cap funds (-$2.8 billion) and mid-cap funds (-$513 million), while investors on the nondomestic equity side were net purchasers of international equity funds (+$964 million) but remained net redeemers of global equity funds (-$56 million).

Conventional Fixed Income Funds

For the fifth consecutive week, taxable bond funds (ex-ETFs) witnessed net inflows, attracting some $4.0 billion this past week, while posting a 0.23% return for the fund-flows week. Investors were net purchasers of corporate investment-grade debt funds (+$3.5 billion) and flexible funds (+$716 million), while corporate high-yield funds (-$355 million) witnessed the largest net outflows of the group. For the fifty-seventh straight week, municipal bond funds (ex-ETFs) witnessed net inflows—taking in $1.5 billion—while posting a 0.06% gain on average for their sixth straight weekly market gain.


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