May 28, 2020

U.S. Weekly FundFlows Insight Report: ETF and Fund Investors Become Slightly More Risk Seeking During the Week

by Tom Roseen.

For the thirteenth consecutive week, investors were overall net purchasers of fund assets (including those of conventional funds and ETFs), injecting $10.6 billion for Lipper’s fund-flows week ended May 27, 2020. Fund investors were net purchasers of taxable fixed income funds (+$12.5 billion) and municipal bond funds (+$1.1 billion), while being net redeemers of equity funds (-$2.9 billion) and money market funds (-$41 million, the group’s second consecutive week of net redemptions) this week.

Market Wrap-Up

For the fund-flows week ended May 27, 2020, markets rallied as investors focused on states reopening their economies, other countries gradually rolling back their lockdown measures, and Federal Reserve officials suggesting that policymakers should consider incentives to get workers back on the job rather than expanding unemployment pay.

On the domestic side, the Russell 2000 Price Only Index (+6.64%) witnessed the largest plus-side return for the fund-flows week of the broadly followed U.S. indices, followed by the Dow Jones Industrial Average Price Only Index (+3.96%). The NASDAQ Composite Price Only Index witnessed the smallest return for the flows week, rising just 0.39%. Overseas, the Xetra DAX Total Return Index (+3.68%) chalked up the strongest plus-side returns of the often-followed broad-based global indices, while the Shanghai Composite Price Only Index (-2.28%) suffered the only losses for the week.

On Thursday, May 21, energy and tech stocks slumped after a report showed that in the week prior another 2.4 million Americans were added to the role of first-time jobless claims and tensions between Beijing and Washington rose. While investors appeared to be optimistic about states cautiously reopening after COVID-19 lockdowns, they remained hesitant after learning about weak economic reports and growing animosities between the U.S. and China. The number of unemployed Americans is nearing the 40 million range, or approximately 20% of the workforce.

However, on Friday, May 22—ahead of the three-day Memorial Day weekend—the equity markets rallied as investors appeared to ignore rising U.S./China tensions and focused on the possible benefits of the economy opening sooner than some had planned. Investors bid up small-cap issues, with the Russell 2000 gaining 7.48% for the week. However, capping returns, China dropped its GDP target and suggested that the government was preparing to impose a national security law on Hong Kong after last year’s pro-democracy protests. In response, the U.S. Congress moved forward with a bill that could prevent Chinese companies from being listed on U.S. exchanges.

U.S. markets were closed on Monday, May 25, in observance of Memorial Day. On Tuesday, the Dow closed up 500 points, testing the 25,000 mark, on COVID-19 vaccine news and economic recovery hopes as investors focused on improvement in the global economy, gradual removal of coronavirus restrictions, and Americans appearing to embrace more travel and larger group functions.

On Wednesday, the U.S. stock market rallied once again despite the Federal Reserve reporting in its Beige Book that economic activity through May 18 fell sharply and U.S. Secretary of State Mike Pompeo determining that Hong Kong is no longer an autonomous state from China, which could have far-reaching implications on the Sino/American relationship. Nonetheless, investors appeared to embrace the gradual reduction of lockdown measures and unprecedented monetary and fiscal measures taken so far by central banks and governments worldwide.

Exchange-Traded Equity Funds

For the second consecutive week, equity ETFs witnessed net inflows, though they took in just $385 million for the most recent fund-flows week. Authorized participants (APs) were net purchasers of domestic equity ETFs (+$1.3 billion), injecting net new money for the third week in a row. However, nondomestic equity ETFs witnessed their fourteenth week of net outflows, handing back $866 million this past week. Invesco QQQ Trust 1 ETF (QQQ, +$1.1 billion) and iShares Core Dividend Growth ETF (DGRO, +$811 million) attracted the largest amounts of net new money of all individual equity ETFs. At the other end of the spectrum, iShares Russell 2000 ETF (IWM, -$1.3 billion) experienced the largest individual net redemptions, and Consumer Staples Select Sector SPDR ETF (XLP, -$396 million) suffered the second largest net redemptions of the week.

Exchange-Traded Fixed Income Funds

For the ninth week in a row, taxable fixed income ETFs witnessed net inflows, taking in $7.6 billion this last week. APs were net purchasers of corporate investment-grade debt ETFs (+$3.7 billion), corporate high-yield debt ETFs (+$3.6 billion), and flexible ETFs (+$507 million), while being net redeemers of government-Treasury ETFs (-$423 million). iShares iBoxx $ High Yield Corporate Bond ETF (HYG, +$2.0 billion) and iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD, +$1.5 billion) attracted the largest amounts of net new money of all individual taxable fixed income ETFs. Meanwhile, SPDR Bloomberg Barclays 1-3 Month T-Bill ETF (BIL, -$371 million) and iShares 20+ Year Treasury Bond ETF (TLT, -$163 million) handed back the largest individual net redemptions for the week. For the fourth consecutive week, municipal bond ETFs witnessed net inflows, taking in $221 million this week.

Conventional Equity Funds

For the fifth week in a row, conventional fund (ex-ETF) investors were net redeemers of equity funds, withdrawing $3.3 billion, while posting a 2.33% return for the flows week. Domestic equity funds, taking in just $129 million, witnessed their second weekly net inflows in three while posting a 2.66% market return on average for the fund-flows week. Nondomestic equity funds—posting a 1.58% gain on average—experienced their eighth consecutive weekly net outflows, handing back $3.4 billion this past week. On the domestic equity side, fund investors continued to shun large-cap funds (-$338 million) but padded the coffers of equity income funds (+$646 million), while investors on the nondomestic equity side were net redeemers of international equity funds (-$2.8 billion) and global equity funds (-$644 million).

Conventional Fixed Income Funds

For the seventh week in a row, taxable bond funds (ex-ETFs) witnessed net inflows—taking in $4.9 billion this past week—while posting a 0.91% return for the fund-flows week. Investors were net purchasers of corporate investment-grade debt funds (+$3.8 billion) and corporate high-yield debt funds (+$2.7 billion), while flexible funds (-$1.0 million) and international & global debt funds (-$921 million) witnessed the largest net outflows of the group. For the second consecutive week, municipal bond funds (ex-ETFs) witnessed net inflows—taking in $871 million—while posting a 0.65% return on average for their fourth straight weekly market gain.

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