by Pat Keon, CFA.
Lipper’s fund asset groups (including both mutual funds and ETFs) took in net new money totaling $28.8 billion for the fund-flows trading week ended Wednesday, May 6. This week’s net inflows were driven by money market funds (+$32.8 billion) and taxable bond funds (+$11.9 billion), while equity funds (-$15.6 billion) and municipal bond funds (-$408 million) both suffered net outflows.
Equity markets were down this week—the Dow Jones Industrial Average, S&P 500 Index, and NASDAQ Composite Index retreated 3.93%, 3.10%, and 0.68%, respectively. The majority of the losses suffered by the indices occurred during the first part of the trading week as the equity markets were weighed down by President Donald Trump’s threat of retaliatory tariffs against China, as well as the release of a flurry of poor economic data. On the economic front, consumer spending fell a record-setting 7.3% in March while manufacturing activity in the U.S. fell to an 11-year low in April. In addition, U.S. corporations started to forewarn of the potential earnings carnage to come as Apple stated that it’s impossible to forecast its Q2 results given the current economic landscape, and Amazon gave guidance that it’s possible the company could record its first quarterly loss in five years.
President Trump floated the idea of hitting China with additional tariffs as his administration started to explore ways to exact some type of financial compensation from the Chinese government for the manner in which it handled the outbreak of the coronavirus. Stocks recouped some of their losses in mid-week trading on the strength of parts of the U.S. (as well as other countries) beginning to awaken from their self-imposed coronavirus-induced economic slumber. Investor sentiment took another downturn at week’s end as monthly unemployment data indicated that private employers in the U.S. laid off more than 20.2 million workers during April. Total jobless claims attributable to the pandemic are now more than 33 million. These numbers have led the unemployment rate to be forecast to grow to a post-Great Depression high of 15%-16% after being at a 50-year low of 3.5% before the start of the COVID-19 crisis.
Despite this week’s losses, the NASDAQ (+14.99%), S&P 500 (+10.21%), and Dow Jones (7.97%) all have solid gains for the quarter to date.
ETFs saw $3.4 billion leave their coffers this week, breaking a streak of five consecutive weekly net inflows. Equity ETFs (-$9.2 billion) were responsible for all of these net outflows while taxable bond ETFs (+$5.8 billion) and muni debt ETFs (+$19 million) both took in net new money. The largest individual net outflows among equity ETFs belonged to SPDR S&P 500 ETF (SPY, -$4.3 billion) while three other equity ETFs suffered net negative flows of greater than $1 billion: SPDR S&P Dividend ETF (SDY, -$1.5 billion), iShares MSCI EAFE ETF (EFA, -$1.2 billion), and iShares Core S&P 500 ETF (IVV, -$1.1 billion). The largest net positive flows for the taxable bond group belonged to below investment-grade debt products as iShares iBoxx $ High Yield Corporate Bond ETF (HYG), SPDR Bloomberg Barclays High Yield Bond ETF (JNK), and Xtrackers USD High Yield Corporate Bond ETF (HYLB) had net inflows of $1.6 billion, $456 million, and $455 million, respectively.
Equity Mutual Funds
Equity mutual funds suffered net outflows of $6.4 billion this week as both domestic equity funds (-$4.7 billion) and nondomestic equity funds (-$1.7 billion) saw money leave. The net outflows on the domestic side were widespread and paced by the Large-Cap Core Funds (-$1.2 billion) and Multi-Cap Value Funds (-$1.0 billion) peer groups. For the nondomestic funds, the Emerging Markets Funds (-$452 million) peer group experienced the highest net outflows.
Fixed Income Mutual Funds
Taxable bond funds (+$6.1 billion) took in net new money for the sixth straight week while muni bond funds (-$427 million) had net outflows for the second consecutive week. For taxable bond funds, the largest net inflows among the peer groups were attributable to Ultra-Short Obligation Funds (+$1.9 billion) and Core Bond Funds (+$1.7 billion), while for the muni bond funds the Short Muni Debt Funds (+$341 million) peer group took in the most net new money by far but that was more than offset by the $637 million net outflow from High-Yield Muni Debt Funds.
Money Market Mutual Funds
As a result of the COVID-19 pandemic, money market funds (+$32.8 billion) took in net new money for the tenth straight week as investors tried to wait out the uncertainty. The group’s total intake during this time period is more than $1.0 trillion, but this week’s net positive flow is the smallest during the streak, so maybe the investing landscape is starting to return to some state of normalcy. The largest net inflows this week belonged to two of the institutional peer groups as Institutional U.S. Government Money Market Funds and Institutional Money Market Funds grew their coffers by $16.5 billion and $10.0 billion, respectively.