March 12, 2020

Lipper U.S. Weekly FundFlows Insight Report: Volatile Trading Week Sends Markets into Bear Territory, Drives Fund Investors to the Sidelines in Record Numbers

by Pat Keon, CFA.

Lipper’s fund asset groups (including both mutual funds and exchange-traded funds) took in $70.4 billion of net new money for the fund-flows trading week ended Wednesday, March 11. Money market funds (+$87.6 billion) were responsible for all of the week’s net inflows as investors parked a significant amount of money on the sidelines, driven by the uncertainty surrounding the coronavirus pandemic.

This week’s net positive flows for money market funds bested the group’s previous record net inflow of $81.2 billion for the fund-flows week ended December 12, 2018. The other asset groups all saw money leave as taxable bond funds, equity funds, and municipal bond funds posted net outflows of $11.2 billion, $4.2 billion, and $1.8 billion, respectively.

Market Overview

Continued coronavirus fears plus a burgeoning price war in the oil industry sent the markets careening into bear market territory during a volatile week of trading. The Dow Jones Industrial Average, S&P 500 Index, and the NASDAQ Composite Index closed the fund-flows trading week down 13.06%, 12.42%, and 11.82%, respectively. The losses pushed the NASDAQ and Dow into bear territory, as they closed down 23.45% and 20.30% from their mid-February highs, while the S&P 500 seemed poised to follow suit, down 19.04% since its recent peak. These results ended the 11-year bull market run.

On Monday, March 9, the start of an oil price war exacerbated what was already a bad week of trading. The price dispute emanated from a spat between OPEC and Russia and sent the price for Brent crude (the global benchmark for oil prices) spiraling 24.10% on March 9—its worst one-day decline since the 1991 Gulf War. Brent crude is off 39.66% since its recent high of $59.31 on February 20. Adding the upheaval in oil prices on top of the coronavirus crisis resulted in all of the equity indices being down more than 7% on March 9 and the New York Stock Exchange’s Level 1 circuit breaker being triggered for the first time since the rules for it were revised in 2013. The Level 1 circuit breaker results in a 15-minute halt in trading and occurs when the S&P 500 Index is down at least 7% from its previous close.

Oil prices and U.S. government bond yields are viewed as key indicators in respect to the strength of the economy. In conjunction with the equity markets tanking, the yield on the U.S. 10-year Treasury note has given up 70 basis points (retreating from 1.33% to 0.86%) over the last three weeks, causing recession fears to surface again. Things appeared to stabilize the following day as oil prices bounced back almost 10%, the yield on the 10-year note was up 25 basis points, and all three of the aforementioned equity indices recorded gains in the neighborhood of 5%.

The positive sentiment went by the wayside the next day as the World Health Organization officially declared the coronavirus a global pandemic and criticized the governmental efforts to combat its spread, while on the home front Dr. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, stated in testimony before Congress that “things will get worse” in respect to the coronavirus in the U.S. This double barrel of negativity caused the equity markets to give back the previous day’s gains and cross the bear market threshold.

ETFs

ETFs had overall net outflows of $361 million. Among the asset groups, equity ETFs (-$1.1 billion) and muni bond ETFs (-$11 million) accounted for the net outflows while taxable bond ETFs took in $727 million of net new money. The two hardest hit equity ETFs were SPDR S&P 500 ETF (SPY) and the Financial Select Sector SPDR (XLF), with net outflows of $1.9 billion and $1.5 billion, respectively. In response to yields dropping, Treasury products attracted the most net money among taxable bond ETFs, led by iShares 1-3 Year Treasury Bond ETF (SHY) and iShares Short Treasury Bond ETF (SHV), which grew their coffers by $2.4 billion and $1.6 billion, respectively.

Equity Mutual Funds

The equity mutual fund group saw money leave (-$3.2 billion) for the eleventh straight week. Domestic equity funds (-$2.2 billion) were responsible for the majority of the net outflows, while nondomestic equity funds contributed $996 million to the total net negative flows. Among the peer groups, on the domestic side Large-Cap Growth Funds (-$1.5 billion) had the largest net outflows, while the largest net outflows for the non-domestic peer groups belonged to International Multi-Cap Core Funds (-$506 million).

Fixed Income Mutual Funds

Taxable bond funds (-$11.9 billion) and muni bond funds (-$1.7 billion) both suffered net outflows for the second consecutive week. The lion’s share of the taxable bond fund peer groups had assets leave, led by Core Bond Funds (-$2.3 billion), High Yield Funds (-$2.2 billion), and Loan Participation Funds (-$1.8 billion). On the tax-exempt side of the ledger, High Yield Muni Debt Funds had record net negative flows of $1.6 billion.

Money Market Mutual Funds

The group’s record setting weekly net inflows of $87.6 billion were driven by the Institutional U.S. Government Money Market Funds (+$55.7 billion) and Institutional U.S. Treasury Money Market Funds (+$29.2 billion) peer groups.

 

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