by Pat Keon, CFA.
Lipper’s fund asset groups (including both mutual funds and ETFs) had net inflows of $3.8 billion for the fund-flows trading week ended Wednesday, May 20. After 11 straight weeks of net inflows induced by the COVID-19 pandemic, money market funds experienced net outflows as $1.0 billion left their coffers. During this eleven-week run, money markets took in $1.1 trillion of net new money and set several weekly records for their largest positive net flows ever. Among the other fund asset groups, taxable bond funds and municipal bond funds had net inflows of $7.9 billion and $1.8 billion, respectively, while equity funds experienced net negative flows of $4.9 billion.
Equity markets experienced healthy gains this week—the NASDAQ Composite Index, Dow Jones Industrial Average, and S&P 500 Index appreciated 5.78%, 5.71%, and 5.38%, respectively. For Q2 to date, the NASDAQ, S&P 500, and the Dow all had double-digit percentage gains at 21.76%, 14.97%, and 12.13%.
The markets took their strength this week from hopes for a COVID-19 vaccine, cheerleading and support from the Federal Reserve, and the U.S. starting to reopen for business. Moderna Inc., a biotechnology company, released news on Monday, May 18, that its phase one trial for a coronavirus vaccine had showed promising results. The phase two trial for the experimental vaccine has already been approved by the Food and Drug Administration. In an interview on CBS’ “60 Minutes,” Federal Reserve Chairman Jerome Powell stated that, “In the long-run, and even in the medium run, you wouldn’t want to bet against the American economy.”
Powell remained optimistic that the U.S. would not fall into an economic depression despite the potential for the unemployment rate to go as high as 25% and pledged that the Fed would use all of the tools at its disposal to continue to provide support to the economy. With the Memorial Day holiday (the unofficial start to summer) being right around the corner, all 50 states have now started to reopen in some capacity. Coupled with the Federal Reserve’s actions, this has raised investors’ hopes for a rapid economic recovery for the country.
ETFs took in $4.0 billion of net new money this week as all three fund asset groups participated. Taxable bond ETFs posted the most impressive net inflows at $2.7 billion, led by iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD, +$920 million) and iShares 20+ Years Treasury Bond ETF (TLT, +$475 million). Equity ETFs recorded net inflows of $681 million for the week, paced by iShares Russell 2000 ETF (IWM, +$2.7 billion), Invesco QQQ Trust (QQQ, +$1.4 billion), and SPDR Gold (GLD, +$1.1 billion). These large increases were nearly offset by $3.8 billion of net outflows from SPDR S&P 500 ETF (SPY). The muni bond ETF group grew its coffers by $606 million thanks to iShares National Muni Bond ETF (MUB, +$329 million) and SPDR Nuveen Bloomberg Barclays High Yield Municipal Bond ETF (HYMB, +$107 million).
Equity Mutual Funds
Equity mutual funds (-$5.6 billion) saw money leave for the fourth straight week. The net outflows were almost evenly split between domestic equity funds (-$2.9 billion) and nondomestic equity funds (-$2.7 billion). The net outflows on the domestic side were led by the S&P 500 Index Funds (-$1.2 billion) and Small-Cap Core Funds (-$793 million) peer groups. For the nondomestic funds, the Emerging Markets Funds (-$806 million) peer group saw the most net money leave.
Fixed Income Mutual Funds
Taxable bond funds (+$5.1 billion) took in net new money for the sixth straight week, while muni bond funds (+$1.2 billion) pushed its own net inflows streak to two. For taxable bond funds, the largest net inflows among the peer groups belonged to Core Bond Funds (+$1.5 billion) and Ultra-Short Obligation Funds (+$1.4 billion). Among the tax-exempt fund peer groups, Short Muni Debt Funds (+$438 million) distinguished themselves.
Money Market Mutual Funds
As stated earlier, for the first time since the COVID-19 pandemic gripped the world, money market funds experienced net outflows (-$1.0 billion), breaking a streak of eleven net inflows. Interestingly, only one money market funds peer group suffered a net outflow (Institutional U.S. Government Money Market Funds, -$19.7 billion), but that was enough to outweigh the total net inflows for the other five money market funds groups.