by Pat Keon, CFA.
After 13 consecutive weekly net inflows (starting with the fund-flows week ended March 4), Lipper’s fund asset groups (including both mutual funds and ETFs) suffered net negative flows of $21.0 billion for the fund-flows trading week ended Wednesday, June 3. Just as they were the source of the majority of net inflows during the aforementioned streak, money market funds (-$30.5 billion) were responsible for the majority of this week’s net outflows. Equity funds (-$4.6 billion) also contributed to the overall net outflows, while taxable bond funds and municipal bond funds took in $12.9 billion and $1.2 billion of net new money, respectively.
Equity markets continued to rebound from their COVID-19 induced doldrums. The NASDAQ Composite Index and the S&P 500 Index each appreciated 2.9% for the fund-flows trading week and the Dow Jones Industrial Average was not far behind with an increase of 2.8%. For the quarter to date, the NASDAQ Composite, S&P 500, and Dow have impressive gains of 25.8%, 20.8%, and 19.9%, respectively. The NASDAQ’s performance has wiped out its Q1 losses and the index is up 7.9% for the year to date, while the Dow (-8.0%) and the S&P 500 (-3.3%) are both still in the red for the year.
Equity markets continued to rally as investors took strength from improving economic data and optimism that the easing of coronavirus lockdowns will lead to an economic recovery in the second half of the year. Stocks surged on the last trading day of the week as the ADP Research Institute released data showing that 2.8 million private-sector jobs were lost in May. These results were well short of the 8.7 million forecast and a significant improvement from the 20.2 million jobs that were actually lost in April. Two sets of data released by the Institute for Supply Management this week indicated that the economy may have reached its nadir and is now starting on its long recovery. The group’s manufacturing index rose to 43.1% in May (up from 41.5% in April), while its non-manufacturing activity index climbed to 45.4% from 41.8%. The non-manufacturing index reflects the services side of the economy such as retail stores and restaurants. In general, any result below 50.0% for these statistics points to an economy in contraction, but as they are both up from their April lows it is a move in the right direction and investors are hopeful that these numbers will continue to climb as larger parts of the U.S. economy are reopened.
ETFs (+$5.0 billion) had net inflows for the fourth straight week, driven by taxable bond ETFs (+$5.2 billion). The largest individual net inflows among this fund asset group belonged to iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD, +$2.2 billion) and iShares iBoxx $ High Yield Corporate Bond ETF (HYG, +$1.6 billion). Muni bond ETFs (+$518 million) also contributed to the overall net inflows as they were paced by iShares National Muni Bond ETF (MUB, +$314 million). Conversely, equity ETFs experienced net outflows of $798 million. The most significant net negative flows were suffered by SPDR S&P 500 ETF (SPY, -$3.8 billion), Invesco QQQ Trust (QQQ, -$1.9 billion), and iShares MSCI EAFE ETF (EFA, -$1.1 billion).
Equity Mutual Funds
Equity mutual funds (-$3.8 billion) had net outflows for the sixth straight week. The net outflows were relatively evenly split between nondomestic equity funds (-$2.0 billion) and domestic equity funds (-$1.7 billion). The net outflows on the nondomestic side were led by International Multi-Cap Growth Funds (-$674 million), while the Mid-Cap Core Funds (-$943 million) peer group saw the most net money leave on the domestic side of the ledger.
Fixed Income Mutual Funds
Taxable bond funds (+$7.7 billion) had net positive flows for the eighth consecutive week, while muni bond funds (+$688 million) increased its own net inflows streak to four. For taxable bond funds, the largest net inflows among the peer groups belonged to High Yield Funds (+$2.3 billion), Ultra-Short Obligation Funds (+$1.6 billion), and Core Bond Funds (+$1.5 billion). Short Muni Debt Funds (+$608 million) and General Muni Debt Funds (+$335 million) led the way for tax-exempt funds.
Money Market Mutual Funds
Money market funds (-$30.5 billion) had money leave their coffers for the third straight week. This week’s net outflows were driven by the Institutional U.S. Government Money Market Funds (-$18.2 billion) and Institutional U.S. Treasury Money Market Funds (-$14.9 billion) peer groups.