by Pat Keon, CFA.
Lipper’s fund asset groups (including both mutual funds and ETFs) suffered net negative flows of $54.5 billion for the fund-flows trading week ended Wednesday, June 17. The net outflows were attributable to money market funds (-$35.8 billion) and equity funds (-$25.5 billion). It was the fifth straight weekly net outflows for the money market funds group. This streak comes directly after a run of 11 straight net inflows that were a result of the impact of the coronavirus pandemic. On the plus side, the taxable bond funds (+$5.1 billion) and municipal bond funds (+$1.7 billion) groups both took in net new money. It was the tenth straight net positive flows for taxable bond funds and the sixth for muni bond funds.
Overall, the major equity indices were down for the fund-flows trading week as the Dow Jones Industrial Average, S&P 500 Index, and the NASDAQ Composite Index closed down 3.2%, 2.4%, and 1.1%, respectively. The indices suffered the lion’s share of their losses on June 11 driven by sobering news from the Federal Reserve and renewed fears of a resurgence in COVID-19 outbreaks. On this day, the Dow Jones Industrial Average, S&P 500 Index, and NASDAQ Composite Index lost 6.9%, 5.9%. and 5.2%, respectively, which was reminiscent of the one-day losses suffered in early to mid-March at the start of the pandemic.
After its meeting on June 10, the Federal Reserve released a statement indicating that it sees the economic recovery as being long-term and dependent upon future spikes in COVID-19 outbreaks. It projected that the U.S. economy would contract a total of 6.5% this year and unemployment would still be high (9.3%) at year-end. Piling on to this grim economic picture was that multiple states were reporting increases in coronavirus cases as they started to reopen for business, creating concerns about the threat of a potential second wave.
Ironically, the markets rallied later in the week on additional statements from the Fed. The Fed announced that it would initiate its corporate bond buying program and that bit of good news was followed by Federal Reserve Chairman Jerome Powell stating that more federal stimulus will probably be needed for the economy to fully recover.
ETFs (-$13.5 billion) suffered net outflows for the first week in six thanks to the equity ETF group, which had net negative flows of $16.0 billion. These net outflows were driven by SPDR S&P 500 ETF (SPY, -$5.4 billion), Health Care Select Sector SPDR Fund (XLV, -$2.4 billion), and Financial Select Sector SPDR Fund (XLF, -$2.4 billion). Taxable bond (+$2.5 billion) and muni bond ETFs (+$47 million) both took in net new money. The net inflows for taxable bond ETFs were the group’s twelfth straight and were driven by iShares Intermediate-Term Corporate Bond ETF (IGIB, +$1.4 billion) and iShares 0-3 Month Treasury Bond ETF (SGOV, +$755 million).
Equity Mutual Funds
Equity mutual funds (-$9.5 billion) saw money leave their coffers for the eighth consecutive week. Domestic equity funds (-$7.0 billion) accounted for the majority of the net outflows while nondomestic funds had net negative flows of $2.5 billion. On the domestic side, the hardest hit peer groups were Large-Cap Core Funds (-$3.4 billion) and Multi-Cap Core Funds (-$1.9 billion), while International Multi-Cap Growth Funds (-$1.5 billion) had the largest net outflows for the nondomestic groups.
Fixed Income Mutual Funds
Taxable bond funds (+$2.6 billion) took in net new money for the tenth consecutive week, while muni bond funds (+$1.2 billion) extended their net inflows streak to six. The largest net positive flows for tax-exempt funds belonged to the Short Muni Debt Funds (+$344 million) and General Muni Debt Funds (+$313 million) groups, while funds in the Ultra-Short Obligation Funds classification led the way on the taxable bond fund side with a net intake of $1.3 billion.
Money Market Mutual Funds
Money market funds (-$35.8 billion) suffered their fifth straight net outflows. The group has suffered total net negative flows of $98.2 billion during this downturn, which pales in comparison to the $1.1 trillion total net inflows during its preceding 11-week run of net positive flows. The most significant net outflows this week belonged to Institutional U.S. Government Money Market Funds (-$26.6 billion) and Institutional U.S. Treasury Money Market Funds (-$11.7 billion).