March 5, 2020

U.S. Weekly FundFlows Insight Report: Investors Duck for Cover for the Week as COVID-19 Fears Escalate

by Tom Roseen.

For the fourth week in five, investors were overall net purchasers of fund assets (including those of conventional funds and ETFs), injecting $9.0 billion for Lipper’s fund-flows week ended March 4, 2020. However, the headline number is misleading. Fund investors were net purchasers of money market funds (+$38.5 billion), but were net redeemers of equity funds (-$20.3 billion), taxable fixed income funds (-$8.9 billion), and municipal bond funds (-$250 million) this week.

Market Wrap-Up

For the fund-flows week ended March 4, 2020, the markets took investors on a major rollercoaster ride as the Dow and S&P 500 indices witnessed in three of its five trading days market moves that exceeded 4% in either direction as trepidations of the coronavirus’ impact on global trade were partially offset by central bank intervention. The Dow Jones Industrial Average Price Only Index (+0.49%) 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 (+0.44%), while the Russell 2000 Price Only Index (-1.39%) posted the only negative return of the group. Overseas, the Shanghai Composite Price Only Index (+2.01%) posted the only plus-side return of the often-followed broad-based global indices, while the FTSE 100 Price Only Index (-3.96%) suffered the largest decline.

On Thursday, February 27, all three major U.S. stock market indices closed lower for the sixth straight day, taking the benchmarks into correction territory, as the coronavirus epidemic disrupted global trade and travel. The S&P 500 and NASDAQ indices suffered their worst one-day percentage decline since August 18, 2011. The head of the World Health Organization said the outbreak has the potential to become a pandemic. Near-month crude oil prices fell to a 13-month low on the day and the 10-year U.S. Treasury yield fell to 1.296%, an all-time low.

On Friday, February 28, stocks witnessed a seventh straight day of declines, with the major indices suffering their largest weekly declines since October 2008 as investors evaluated the degree of damage COVID-19 will inflict on the global economy and supply chains. Federal Reserve Chair Jerome Powell said the central bank was closely monitoring the coronavirus epidemic and its potential to slow economic growth, raising optimism that the Fed will cut intertest rates to help the economy. Nonetheless, the 10-year Treasury yield slipped to 1.13%, its lowest closing value on record, dropping below the three-month Treasury bill rate of 1.27%.

The Dow closed up nearly 1,300 points (+5.1%) on Monday, March 2, witnessing its strongest one-day percentage gain in almost 11 years. Investors shook off a weaker-than-expected February ISM manufacturing reading and instead focused on commitments by the European Central Bank, the Fed, and other central banks that they were ready to take appropriate actions if needed. On Tuesday, the Dow ended the day 2.94% lower and the 10-year Treasury yield fell below 1% after the Federal Reserve Board announced an emergency 50-basis-point interest rate cut, indicating while it thought the U.S economy’s fundamentals remained strong, the coronavirus posed risks to economic activity. However, on Wednesday, March 4, the Dow and the S&P 500 closed 4.52% and 4.22% higher, respectively, on the day as investors warmed to the Fed’s rate cut and were encouraged by other central banks following suit, with the Bank of Canada also applying a 50-basis-point cut.

Exchange-Traded Equity Funds

For the second consecutive week, equity ETFs witnessed net outflows, handing back $9.0 billion for the most recent fund-flows week. Authorized participants (APs) were net redeemers of domestic equity ETFs (-$6.3 billion), also for the second week of net outflows. Meanwhile, nondomestic equity ETFs witnessed their first week of net outflows in four, handing back $3.7 billion this past week. Utilities Select Sector SPDE ETF (XLU, +$1.3 billion) and iShares Russell 2000 ETF (IWM, +$1.1 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, -$3.8 billion) experienced the largest individual net redemptions, and Financial Select Sector SPDR ETF (XLF, -$1.4 billion) suffered the second largest net redemptions of the week.

Exchange-Traded Fixed Income Funds

For the fourth week in five, taxable fixed income ETFs witnessed net inflows, taking in $2.7 billion. APs were net purchasers of government-Treasury ETFs (+$5.6 billion) and government-mortgage ETFs (+$177 million) while being net redeemers of corporate high-yield CEFs (-$1.9 billion) and flexible ETFs (-$720 million). iShares 7-10 Year Treasury Bond ETF (IEF, +$1.6 billion) and SPDR Bloomberg Barclays 1-3 Month T-Bill ETF (BIL, +$1.1 billion) attracted the largest amounts of net new money of all individual taxable fixed income ETFs. Meanwhile, iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD, -$2.0 billion) and SPDR Bloomberg Barclays High Yield Bond ETF (JNK, -$1.5 billion) handed back the largest individual net redemptions for the week. For the first week in 22, municipal bond ETFs witnessed net outflows, handing back $157 million this week.

Conventional Equity Funds

For the tenth consecutive week, conventional fund (ex-ETF) investors were net redeemers of equity funds, withdrawing $11.3 billion. Domestic equity funds, handing back a little less than $8.1 billion, witnessed their tenth weekly net outflows while posting a 0.13% return on average for the fund-flows week. Their nondomestic equity fund counterparts, posting a 0.03% loss on average, witnessed their first weekly net outflows in three, handing back $3.2 billion this past week. On the domestic equity side, fund investors continued to shun large-cap funds (-$3.1 billion) and small-cap funds (-$1.9 million), while investors on the nondomestic equity side were net redeemers of international equity funds (+$2.6 billion) and global equity funds (-$654 million).

Conventional Fixed Income Funds

For the first week in nine, taxable bond funds (ex-ETFs) witnessed net outflows, handing back $11.6 billion this past week while posting a 0.68% return for the fund-flows week. Investors were net purchasers of government-Treasury & Mortgage funds (+$342 billion) and corporate high-quality funds (+$223 million), while corporate investment-grade debt funds (-$4.5 billion) and corporate high-yield funds (-$3.2 billion) witnessed the largest net outflows of the group. For the first week in 61, municipal bond funds (ex-ETFs) witnessed net outflows—handing back $93 million—while posting a 0.21% gain on average for their tenth straight weekly market gain.

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