June 26, 2020

Investors Continue to Avoid Riskier Assets During the Week and Quarter

by Tom Roseen.

Conventional mutual fund investors and, at various times ETF investors, have been reluctant to embrace equity securities. This comes as not much of a surprise given the uncertainty surrounding the coronavirus and countries reopening their economies, increasing trade tensions, and concerns encompassing a narrow rally in technology stocks that has been driving markets higher. For the Lipper fund-flows week ended June 24, 2020, equity funds (including ETFs) witnessed net redemptions to the tune of $5.0 billion. Year to date, the group has handed back $119.7 billion, with the average equity fund witnessing a 7.96% market loss for the same period.

For the quarter-to-date (QTD) period, however, the average equity fund returned a handsome 18.43%. Nonetheless, fund investors remain net redeemers of equity funds, redeeming a net $72.3 billion. In particular, conventional equity funds have suffered net redemptions QTD so far of $87.5 billion, while equity ETFs have attracted some $15.2 billion.

On the ETF side of this equation, sector-other ETFs (+$27.0 billion), sector-technology ETFs (+$10.0 billion), and sector-healthcare/biotechnology ETFs (+$6.1 billion) were the three-top macro-groups attracting investors’ money, with Lipper’s Commodities Precious Metals ETFs (CMP) classification (+$17.9 billion, a component of sector-other ETFs) drawing in the largest amount of net new money. Surprisingly, though, that classification only returned 13.53% for the same period, contrasted by the top performing classification QTD—Precious Metal Equity ETFs (AU), returning a whopping 49.9%. The explanation probably points toward the safe-haven play for the physical (CMP) versus the equity ownership of mining stocks and the like (AU).

On the conventional equity fund side, investors were net purchasers of sector-technology funds (+$3.4 billion), sector-health/biotechnology funds (+$2.4 billion), and mid-cap funds (+$764 million) as fund investors embraced the narrow market leadership caused by the recent tech-related rally.

In contrast, nondomestic equity funds and ETFs have suffered net redemptions, with international equity and global equity funds and ETFs suffering net redemptions of $51.2 billion and $6.5 billion QTD, respectively. Here authorized participants (APs) and conventional fund investors appear to be of a common mindset, with international and global equity mutual funds witnessing net redemptions of $28.7 billion and $5.9 billion, while APs withdrew a net $22.5 billion and $587 million from international and global equity ETFs, respectively.

On the international equity side of the ledger, emerging markets funds and ETFs suffered the largest net redemptions in the macro-group, handing back a net $16.8 billion QTD. Conventional fund investors withdrew a net $5.3 billion, while APs redeemed a net $11.5 billion for the period. While not a top performer QTD, the Emerging Markets Funds (including ETFs) classification returned an attractive 21.81%. Investors appear to be keeping a concerned eye on shifts in supply chains, trade disputes, liquidity, profitability, and demand when evaluating riskier assets.

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