April 23, 2020

Lipper U.S. Weekly FundFlows Insight Report: Money Market Funds Continue to Dominate Net Inflows, While the Other Asset Classes Appear to Have Stabilized

by Pat Keon, CFA.

Lipper’s fund asset groups (including both mutual funds and ETFs) took in net new money (+$129.9 billion) for fund-flows trading week ended Wednesday, April 22. As has been the recent trend, the lion’s share of these net inflows belonged to money market funds (+$122.6 billion). Overall, this was the eighth consecutive weekly net inflow for the fund asset groups (starting with the fund flows week of March 4), which is a little misleading as an indicator of current investor sentiment. This is due to the fact that over those eight weeks money market funds have had net positive flows of almost $940 billion, while over that same time period taxable bond funds (-$135.0 billion), equity funds (-$47.6 billion), and municipal bond funds (-$30.0 billion) have all suffered mass exoduses.

Money market funds are a safe haven when investors are looking to put money on the sidelines to wait out the current market environment. But the hemorrhaging of money in the other asset groups may have come to an end. For the second straight week, all of the other groups experienced net positive flows. Taxable bond funds (+$5.3 billion) led this week’s results, followed by equity funds (+$1.9 billion) and municipal bond funds (+$74 million). Last week, these three asset groups grew their coffers by $10.3 billion, $5.0 billion, and $833 million, respectively. Equity funds actually have had four consecutive weeks of net positive flows as the group took in $8.1 billion and $3.9 billion, respectively, for the fund flows weeks of April 8 and April 1.

Market Overview

Equity markets were mixed this week—the NASDAQ Composite Index and S&P 500 Index appreciated 1.22% and 0.57%, while the Dow Jones Industrial Average retreated 0.12%. After record setting losses in Q1, the indices have bounced back nicely so far in Q2, with the NASDAQ up 10.33%, followed by the S&P 500 (+8.31%) and the Dow (+7.11%). The April to-date performance is remarkable with what the U.S. has gone through already (shutting down major parts of its economy, record setting unemployment numbers) and what it may yet have to face (recession).

The market’s current recovery from its Q1 free fall can potentially be attributable to a handful of factors: (1) buying on the dip from investors (2) the Federal Reserve’s quick and unprecedented measures to both prop up the U.S. economy and work with other central banks to stave off a global depression (3) the U.S. government’s rescue packages—the $2.2 billion one passed at the end of March and the current $484 billion bill expected to be passed by the House this week and (4) maybe a little optimism as America makes plans for a phased reopening of its economy.

ETFs

ETFs took in net new money (+$3.7 billion) for the fourth straight week. Taxable bond ETFs (+$3.5 billion) were responsible for most of these net inflows, while equity ETFs contributed $212 million of net new money. Municipal bond ETFs suffered net outflows of $32 million. The bulk of the net positive flows for taxable bond ETFs were focused in the High Yield (+$1.1 billion) and Short U.S. Treasury (+$868 million) peer groups, while the largest individual net inflows belonged to iShares iBoxx $ High Yield Corporate Bond ETF (HYG, +$1.3 billion) and iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD, +$709 million). For equity ETFs, the inflows are concentrated in the Healthcare (+$1.4 billion) and Science and Technology (+$961 million) peer groups. For equity ETFs, the largest individual net inflows belonged to Invesco QQQ Trust (QQQ, +$1.7 billion) and the United States Oil Fund (USO, +$1.6 billion).

Equity Mutual Funds

Equity mutual funds took in $1.7 billion in net new money this week, only the second weekly net inflow this year for the group. In another surprise twist, domestic equity mutual funds (+$3.5 billion) were responsible for all of this week’s net positive flows, while nondomestic equity ETFs had net outflows of $1.9 billion. Prior to this week, domestic equity mutual funds had net negative flows in 60 of the last 62 weeks. Drilling down to the peer group level, we see money flowing back into the diversified equity classifications as Mid-Cap Growth Funds and Large-Cap Growth Funds had net inflows of $2.8 billion and $1.5 billion, respectively. On the nondomestic side of things, Emerging Markets Funds (-$1.2 billion) took the biggest hit.

Fixed Income Mutual Funds

Both the taxable bond (+$1.8 billion) and muni bond (+$106 million) groups took in net new money for the second consecutive week. For taxable bonds, money flooded into the High Yield Funds (+$917 million), Core Bond Funds (+$776 million), and Ultra-Short Obligations Funds (+$594 million) peer groups. For the tax-exempt side of the equation, the most sizeable net inflows belonged to the General Muni Debt Funds (+$252 million) and Short Muni Debt Funds (+$192 million) groups.

Money Market Mutual Funds

This week’s net inflows for money market funds (+$122.6 billion) were once against dominated by the institutional components for U.S. Government Money Market Funds (+$70.5 billion) and U.S. Treasury Money Market Funds (+$37.7 billion). Institutional U.S. Government Money Markets have taken in more than $430 billion in net new money for the year to date. This would represent the group’s second-best annual net inflow ever, trailing only the result from 2016 (+$519.8 billion). The year-to-date net inflows for Institutional U.S. Treasury Money Markets (+$328.0 billion) would be its best annual results ever.

 

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