April 30, 2020

U.S. Weekly FundFlows Insight Report: Despite Market Rally, ETF and Fund Investors Give Equities a Cold Shoulder During the Week

by Tom Roseen.

For the ninth consecutive week, investors were overall net purchasers of fund assets (including those of conventional funds and ETFs), injecting $78.7 billion for Lipper’s fund-flows week ended April 29, 2020. Fund investors were net purchasers of money market funds (+$83.0 billion) and taxable fixed income funds (+$4.0 billion), while being net redeemers of equity funds (-$7.0 billion) and municipal bond funds (-$1.3 billion) this week.

Market Wrap-Up

For the fund-flows week ended April 29, 2020, markets trended toward the upside as investors watched state governors cautiously reopen their economies, the number of reported coronavirus cases continued to slow, and the Federal Reserve Board committed to do whatever it takes to ensure a strong recovery over the coming weeks and months. However, the Q1 earnings reporting season and expected disappointing economic news kept many at bay.

The Russell 2000 Price Only Index (+13.25%) witnessed the strongest gains for the fund-flows week of the broadly followed U.S. indices, followed by the S&P 500 Price Only Index (+5.01%). Overseas, the FTSE 100 Price Only Index (+6.91%) chalked up the strongest plus-side returns of the often-followed broad-based global indices, while the Shanghai Composite Price Only Index (-0.63%) suffered the only losses for the week.

On Thursday, April 23, the Dow Jones Industrial Average posted modest gains after one report said Gilead’s experimental coronavirus drug was inconclusive, although this was denied by the maker. Despite learning that first-time jobless claims jumped 4.4 million in the prior week, bringing the U.S. total to 25 million people that have lost their jobs due to COVID-19, investors eagerly awaited to hear news from the Fed this week. They were also eager to observe the impact a loosening of stay-at-home orders would have on the economy and the infection rate for those communities. On Friday, the US markets closed higher on the day, but lower for the week, as investors evaluated mixed corporate Q1 earnings results and the newest Congressional aid package to combat the impact of the pandemic. Despite learning that U.S. orders for durable goods fell by 14.4% in March, investors cheered news that President Donald Trump signed into law a $484 billion coronavirus aid package which included an additional round of small business funding.

On Monday, April 27, U.S. stocks extended their winning streak as investors embraced the softening of coronavirus lockdowns both here in the U.S. and abroad. However, upside gains were capped as investors looked toward one of the busiest weeks of the corporate earnings season, with guidance expected to be nonexistent and earnings to be severely impacted by the pandemic. The Fed announced that it was expanding its $500 billion Municipal Liquidity Facility to include debt issued by smaller counties and cities. On Tuesday, stocks stumbled slightly as many investors took a wait-and-see approach to the market after Johns Hopkins University reported that the global COVID-19 case total exceeded three million and the death rate climbed to 212,273. Near month crude oil futures declined to $12.34 per barrel for the day. U.S. stocks got a big shot in the arm after the Fed vowed to mount a robust fight to ward off the fallout from the coronavirus after the Federal Open Market Committee meeting was held this week. News that U.S. GDP shrank by an annualized 4.8% in Q1, its worst decline since 2008, and that pending new home sales slumped to its lowest level since 2011 were offset by the Fed’s “whatever it takes” approach to the economy.

Exchange-Traded Equity Funds

For the first week in four, equity ETFs witnessed net outflows, handing back $1.5 billion for the most recent fund-flows week. Authorized participants (APs) were net purchasers of domestic equity ETFs (but only to the tune of +$658 million), injecting net new money for the fourth consecutive week. However, nondomestic equity ETFs witnessed their tenth week of net outflows, handing back $2.2 billion this past week. SPDR S&P Dividend ETF (SDY, +$1.5 billion) and Invesco QQQ Trust 1 ETF (QQQ, +$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, -$4.8 billion) experienced the largest individual net redemptions, and iShares MSCI EAFE ETF (EFA, -$894 million) suffered the second largest net redemptions of the week.

Exchange-Traded Fixed Income Funds

For the fifth week in a row, taxable fixed income ETFs witnessed net inflows, taking in $3.5 billion this last week. APs were net purchasers of government-Treasury ETFs (+$1.5 billion), corporate high-yield ETFs (+$906 million), and flexible ETFs (+$672 million), while being net redeemers of government-mortgage ETFs (-$125 million). iShares 20+ Year Treasury Bond ETF (TLT, +$1.4 billion) and iShares iBoxx $ High Yield Corporate Bond ETF (HYG, +$772 million) attracted the largest amounts of net new money of all individual taxable fixed income ETFs. Meanwhile, iShares U.S. Treasury Bond ETF (GOVT, -$1.1 billion) and iShares Floating Rate Bond ETF (FLOT, -$829 million) handed back the largest individual net redemptions for the week. For the second consecutive week, municipal bond ETFs witnessed net outflows, handing back $259 million this week.

Conventional Equity Funds

For the third week in four, conventional fund (ex-ETF) investors were net redeemers of equity funds, withdrawing $5.5 billion, despite posting a 5.90% plus-side return for the flows week. Domestic equity funds, handing back a little less than $3.2 billion, also witnessed their third weekly net outflows in four while posting a 6.36% return on average for the fund-flows week. Nondomestic equity funds—posting a 4.92% gain on average—experienced their fourth consecutive weekly net outflows, handing back $2.3 billion this past week. On the domestic equity side, fund investors continued to shun large-cap funds (-$3.1 billion), while investors on the nondomestic equity side were net redeemers of international equity funds (-$1.9 billion).

Conventional Fixed Income Funds

For the third week in a row, taxable bond funds (ex-ETFs) witnessed net inflows—taking in $517 million this past week—while posting a 1.20% return for the fund-flows week. Investors were net purchasers of corporate investment-grade debt funds (+$1.9 billion) and government-Treasury & mortgage funds (+$222 million), while flexible funds (-$632 million), government-mortgage funds (-$443 million), and international & global debt funds (-$211 million) witnessed the largest net outflows of the group. For the first week in three, municipal bond funds (ex-ETFs) witnessed net outflows—handing back $996 million—while posting a 1.24% loss on average for their second straight weekly market decline.

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