by Tom Roseen.
For the third week in a row, investors were overall net purchasers of fund assets (including those of conventional funds and ETFs), injecting $65.1 billion for Lipper’s fund-flows week ended March 18, 2020. However, the headline number is totally misleading. Fund investors were net purchasers of money market funds (+$148.0 billion, their largest weekly net inflow on record going back to 1992), but were net redeemers of taxable fixed income funds (-$55.9 billion, a weekly record), equity funds (-$14.8 billion), and municipal bond funds (-$12.2 billion, a weekly record) this week.
For the fund-flows week ended March 18, 2020, markets witnessed swings of 5% or more in both directions over the past five trading days, sending the three major U.S. indices soundly into bear-market territory, declining at least 20% from recent market highs. These wild swings were caused by concerns that COVID-19 will mean a protracted lockdown of several nations and has the potential to lead to defaults across both large and small corporations worldwide because of sharp declines in revenue over the next few months.
The Russell 2000 Price Only Index (-21.60%) suffered the largest declines of the broadly followed U.S. indices for the fund-flows week, bettered by the Dow Jones Industrial Average Price Only Index (-15.52%), while the NASDAQ Composite Price Only Index (-12.10%) mitigated losses slightly better than others in the group. Overseas, the Xetra DAX Total Return Index (-22.31%) and FTSE 100 Price Only Index (-21.07%) suffered the largest declines of the often-followed broad-based global indices, while the Shanghai Composite Price Only Index (-9.07%) did the best job of mitigating losses for the fund-flows week.
On Thursday, March 12, the Dow witnessed its worst trading day since the 1987 crash as liquidity concerns rose related to the coronavirus pandemic, putting an end to the record setting 11-year bull market. Stock prices took it on the chin even after the Federal Reserve Board committed to funding $1.5 trillion to keep credit flowing through the financial market. The Dow plunged 10% on the day after President Donald Trump announced travel restrictions from Europe the night before and many states banned social gatherings of 500 of more. Oil futures closed sharply lower, finishing at $31.50/bbl. On Friday, March 13, stocks witnessed their largest one-day rise since October 28, 2008, after Trump declared a national emergency over the coronavirus. The declaration released $50 billion in funds earmarked to contain the COVID-19 pandemic. The Dow rose 9.4% on the day, supported by an announcement by U.S. Treasury Secretary Steve Mnuchin that the government would use all its tools to support the financial market.
However, the Fed’s surprise interest rate cut over the weekend and rollout of stimulus measures appeared to spook the markets. The Dow closed down nearly 3,000 points (-12.9%) on Monday, March 16, capping a trading day that witnessed circuit breakers temporarily halting trade as investors feared the Fed’s stimulus wouldn’t be enough to combat lost jobs and wages. Late in the trading day, Trump called for Americans to avoid gatherings of 10 or more, further rattling investors. The 10-year Treasury yield declined to 0.72%, suffering its largest one-day decline since March 18, 2009. Near month crude oil prices settled down 9.6% at $28.70/bbl.
On Tuesday, the Dow bounced back more than 1,000 points after the White House backed an $850 billion federal stimulus package and the Fed provided short-term funding to businesses impacted by the pandemic. Stocks continued to rally after the White House outlined some steps the government was considering—deferral of tax payments, sending stimulus checks to Americans, and keeping financial markets open despite recent wild swings. Nonetheless, on Wednesday, March 18, the Dow closed below the 20,000 mark after another round of selloffs tripped circuit breakers despite Congress passing the first of two planned bills providing relief from economic damage. However, Treasury yields rose on concerns of a new spree of government borrowing. Oil took a one-two blow, declining 24% to an 18-year low of $20.37/bbl. The Dow shed 6.3% on the day. Year to date through Wednesday, March 19, 2020, the Dow is down 30.27%, bettered by the S&P 500 (-25.77%) and the NASDAQ Composite (-22.10%).
Taxable and tax-exempt bond funds witnessed unprecedented market declines during the week as investors questioned the credit worthiness of both corporations and municipalities, leading to record outflows during the week.
Exchange-Traded Equity Funds
For the first week in four, equity ETFs witnessed net inflows, taking in $1.9 billion for the most recent fund-flows week. Authorized participants (APs) were net purchasers of domestic equity ETFs (+$4.3 billion), injecting net new money for the second consecutive week. Meanwhile, nondomestic equity ETFs witnessed their fourth week of net outflows, handing back $2.4 billion this past week. SPDR S&P 500 ETF (SPY, +$6.8 billion) and Invesco QQQ Trust 1 ETF (QQQ, +$2.1 billion) attracted the largest amounts of net new money of all individual equity ETFs. At the other end of the spectrum, iShares MSCI Emerging Markets ETF (EEM, -$1.4 billion) experienced the largest individual net redemptions, and SPDR Gold ETF (GLD, -$1.4 billion) suffered the second largest net redemptions of the week.
Exchange-Traded Fixed Income Funds
For the first week in three, taxable fixed income ETFs witnessed net outflows, handing back $13.2 billion (their largest weekly net outflows on record, as investors questioned the credit worthiness of corporations ahead of a prolonged lockdown). APs were net purchasers of government-Treasury ETFs (+$1.6 billion) and balanced ETFs (+$67 million) while being net redeemers of corporate investment-grade ETFs (-$10.9 billion, their largest weekly net outflows on record), international & global debt ETFs (-$1.8 billion), and government-mortgage ETFs (-$1.3 billion). SPDR Bloomberg Barclays 1-3 Month T-Bill ETF (BIL, +$4.3 billion) and iShares Short Treasury Bond ETF (SHV, +$2.1 billion) attracted the largest amounts of net new money of all individual taxable fixed income ETFs. Meanwhile, iShares Core U.S. Aggregate Bond ETF (AGG, -$3.3 billion) and iShares U.S. Treasury Bond ETF (GOVT, -$1.9 billion) handed back the largest individual net redemptions for the week. For the third week in a row, municipal bond ETFs witnessed net outflows, handing back $669 million this week.
Conventional Equity Funds
For the twelfth consecutive week, conventional fund (ex-ETF) investors were net redeemers of equity funds, withdrawing $16.7 billion. Domestic equity funds, handing back a little less than $11.8 billion, witnessed their twelfth weekly net outflows while posting a 15.09% decline on average for the fund-flows week. Their nondomestic equity fund counterparts, posting a 16.12% loss on average, witnessed their third weekly net outflows, handing back $4.9 billion this past week. On the domestic equity side, fund investors continued to shun large-cap funds (-$8.2 billion) and mid-cap funds (-$1.2 billion), while investors on the nondomestic equity side were net redeemers of international equity funds (-$3.2 billion) and global equity funds (-$1.7 billion).
Conventional Fixed Income Funds
For the third week running, taxable bond funds (ex-ETFs) witnessed net outflows, handing back $42.7 billion this past week (their largest one-week net outflows on record going back to 1992) while posting a 7.17% decline for the fund-flows week (also the largest one-week performance decline on record going back to 1992). Investors were net purchasers of government-Treasury & mortgage funds (+$747 million), while corporate investment-grade debt funds (-$24.7 billion, a weekly record), flexible funds (-$7.7 billion), and corporate high-yield funds (-$2.9 billion) witnessed the largest net outflows of the group. For the third week in a row, municipal bond funds (ex-ETFs) witnessed net outflows—handing back a whopping $11.5 billion (also the largest one-week net outflows on record)—while posting a 4.79% loss on average for their second straight weekly market decline.