by Pat Keon, CFA.
The coronavirus has run roughshod over the U.S. equity markets over the last several weeks. After retreating approximately 10% in trading on Thursday, March 12 (stocks’ worst one-day performance since the Black Monday crash in 1987), the Dow Jones Industrial Index, S&P 500 Index, and NASDAQ Composite Index are off 28.26%, 26.74%, and 26.64%, respectively, from their recent highs in mid-February. As the equity markets are now solidly entrenched in bear territory, we have seen fund investors act in kind with their money. For the fund-flows trading week ended Wednesday, March 11, there were several one-week records set for specific peer group net inflows and net outflows (including both mutual funds and ETFs) in direct response to the impact of the pandemic.
There were record setting net outflows in multiple groups this week. Corporate Investment Grade Debt funds experienced net negative flows of $7.3 billion this week on the heels of seeing $4.8 billion leave the week before. This week’s result represents the group’s largest net outflow ever (Lipper began tracking flows data in 1992), while the $4.8 billion is the fourth largest. The majority of the peer groups that fall under the corporate investment grade umbrella suffered net outflows this week, with the Core Bond Funds group taking the biggest hit with a negative net flow of slightly more than $3 billion.
In what seems more logical in these uncertain times, we’ve seen investors moving away from riskier assets in record setting amounts during the last two fund-flows trading weeks. Corporate high-yield debt funds have experienced their fourth and fifth highest net outflows on record, as $5.1 billion and $4.9 billion, respectively, left their coffers during the fund-flows weeks of March 4 and March 11. On the tax-exempt fund side of the ledger, the High Yield Muni Debt Funds put up their worst net outflow number ever (-$1.7 billion) during the March 11 trading week. High yield funds invest primarily in below investment grade debt, which is inherently more risky than corporate investment grade or government debt and, therefore, correlates more closely with equities.
Probably the most telling data we’ve seen over the last two weeks are the results for money market funds. This group had its best one-week net inflows during the March 11 trading week (+$87.6 billion). This week’s net positive flows for money market funds bested the group’s previous record net inflows of $81.2 billion for the fund-flows week ended December 12, 2018. This data tells us that fund investors are putting significant amounts of money on the sidelines until the direction of the coronavirus and the economic impact it will have is more certain.