Refinitiv Lipper U.S. Weekly FundFlows Insight Report: Money Market Funds Suffer Massive Net Outflows as Corporate Tax Bills Come Due

Refinitiv Lipper’s fund asset groups (including both mutual funds and ETFs) experienced net negative flows of $92.8 billion for the fund-flows trading week ended Wednesday, July 15. The lion’s share of these net outflows was attributable to the money market funds (-$90.1 billion) asset group, which was impacted by the delayed deadline for corporate tax returns. Due to COVID-19, the federal government had previously pushed back this deadline from April 15 to July 15. Equity funds (-$8.9 billion) also contributed to the overall net negative flows, while taxable bond funds (+$5.3 billion) and municipal bond funds (+$857 million) ran their net inflows streaks to 14 and 10 weeks, respectively.

Market Overview

The equity indices all posted gains for the fund-flows trading week, with the Dow Jones Industrial Average (+3.1%) and the S&P 500 Index (+1.8%) both outperforming the technology-laden NASDAQ Composite Index (+0.6%).

The markets continued to shrug off the rise in COVID-19 cases in the U.S. and instead chose to focus on positive economic news and the potential for both a therapeutic and a vaccine to treat the virus. The week started with Gilead Sciences announcing that the clinical trial for its experimental drug remdesivir was proven to reduce the risk of mortality of coronavirus patients. In other good news about the pandemic, Moderna disclosed that its vaccine produced a “robust” immune-system response in its study and the drug would advance to a clinical trial later on this month. After posting record-setting closes in six of the previous seven trading sessions, the NASDAQ retreated more than 2.1% on Monday, July 13, as renewed tensions between the U.S. and China initiated a downturn in the tech sector.

ETFs

ETFs (+$334 million) took in net new money for the fourth straight week. The net inflows were attributable to taxable bond ETFs (+$2.4 billion) and muni bond ETFs (+$202 million), while equity ETFs saw $2.2 billion net leave. The net positive flows for the taxable bond group were led by iShares Core U.S. Aggregate Bond ETF (AGG, +$668 million) and iShares iBoxx $ High Yield Corporate Bond ETF (HYG, +$257 million). The net outflows for equity ETFs were paced by SPDR S&P 500 ETF (SPY, -$2.9 billion) and Invesco QQQ Trust (QQQ, -$2.5 billion).

Equity Mutual Funds

For the twelfth straight week, equity mutual funds (-$6.7 billion) saw net money leave. The majority of the net outflows were attributable to domestic equity funds (-$4.3 billion), while nondomestic equity funds chipped in $2.3 billion to the total net negative flows. The largest net outflows among the peer groups belonged to Large-Cap Growth Funds (-$898 million) and Emerging Markets Funds (-$580 million) for the domestic and nondomestic fund universes, respectively.

 Fixed Income Mutual Funds

Taxable bond funds (+$3.0 billion) and tax-exempt bond funds (+$655 million) ran their net positive flows streaks to 14 and 10 weeks, respectively. The Core Plus Bond Funds and Core Bond Funds peer groups led the charge on the taxable bond fund side as they both took in approximately $1.1 billion of net new money. For muni debt funds, the net inflows were spread out relatively evenly among the national muni classifications, as General Muni Debt Funds, Short Muni Debt Funds, Intermediate Muni Debt Funds, High Yield Muni Debt Funds, and Short-Intermediate Muni Debt Funds grew their coffers by $172 million, $123 million, $119 million, $114 million, and $101 million, respectively.

Money Market Mutual Funds

The aforementioned net outflows for this group (-$90.1 billion) were the second largest in its history, trailing only the $144.4 billion for the fund-flows week of September 17, 2008. That week is significant in history since it was the week that Lehman Brothers went bankrupt and marked an escalation in the global financial crisis. In this week’s flows news, all of the money market funds peer groups saw money leave, led by Institutional U.S. Government Money Market Funds (-$50.1 billion) and Institutional U.S. Treasury Money Market Funds ($25.6 billion).