by Pat Keon, CFA.
Refinitiv Lipper’s fund asset groups (including both mutual funds and ETFs) experienced net outflows of $10.0 billion for the fund-flows trading week ended Wednesday, July 29. The net negative flows were attributable to money market funds (-$17.4 billion) and equity funds (-$3.8 billion), but taxable and tax-exempt bond funds continued to be a positive story. Taxable bond funds (+$9.4 billion) and municipal debt funds (+$1.8 billion) extended their respective net inflows streaks to 16 weeks and 12 weeks.
For the first time in five weeks, the equity indices all suffered losses for the fund-flows trading week. The Dow Jones Industrial Average took the biggest hit, with a loss of 1.7%, while the NASDAQ Composite Index and S&P 500 Index retreated 1.5% and 0.5%, respectively.
The downturn in the markets was a direct result of the continued impact of COVID-19 on the American economy. For the first time in almost four months, initial claims for unemployment benefits rose for the week ended July 18. While the increase in jobless claims was not large (109,000), it also was not anticipated and indicated that the labor market might be slowing down due to the spike in coronavirus cases across the nation. The rise in COVID-19 numbers has states questioning if their reopening plans are prudent. Last week’s unemployment claims put the total number of Americans out of work at 32 million.
Other negatives this week included growing uncertainty about whether Congress will be able to pass an additional federal stimulus package and a decrease in consumer confidence. The consumer confidence index lost more than expected in July, falling to 92.6 from 98.3 in June—forecasts had the index closing July at 94.5. As a summer recess deadline looms, political infighting has stalled the passage of the stimulus bill, with the main point of contention between the two parties being what amount of surplus should be added to the standard unemployment benefits.
The U.S. Department of Commerce released data earlier today confirming that the second quarter of 2020 was the worst quarter in the history of the U.S. economy. The government did not begin tracking this data until 1947—therefore, the Great Depression is not factored into the data set. The gross domestic product fell at an annual rate of almost 33% in Q2, and retreated 9.5% as compared to Q2 2019. The decrease in the annual rate is more than three times larger than the worst previously recorded result (an approximate 10% reduction in the annual rate of GDP during Q1 1958). Economists are hopeful that we’ve endured the worst of the contraction, but that will be dependent upon the direction that the COVID-19 war takes and how quickly business can get back to normal.
ETFs (+$5.7 billion) experienced net positive flows for the sixth consecutive week. All of the fund asset groups participated in the gains, with taxable bond ETFs (+$2.9 billion) and equity ETFs (+$2.4 billion) accounting for the lion’s share of the net inflows. Muni bond ETFs grew their coffers by $323 million. The largest individual net inflows among the taxable bond group belonged to iShares Core U.S. Aggregate Bond ETF (AGG, +$1.1 billion) and iShares iBoxx $ High Yield Corporate Bond ETF (HYG, +$422 million). The net inflows for equity ETFs were driven by precious metals products as SPDR Gold Trust (GLD), iShares Gold Trust (IAU), and iShares Silver Trust (SLV) took in $1.1 billion, $991 million, and $565 million of net new money, respectively.
Equity Mutual Funds
Equity mutual funds (-$6.2 billion) suffered net outflows for the fourteenth consecutive week. Domestic equity funds (-$3.8 billion) were responsible for the majority of the net negative flows while nondomestic equity funds contributed $2.5 billion to the total net outflows. The largest net negative flows among the peer groups belonged to Multi-Cap Core Funds (-$1.2 billion) and Emerging Markets Funds (-$447 million) for the domestic and nondomestic fund universes, respectively.
Fixed Income Mutual Funds
The good times continued for both the taxable (+$6.4 billion) and tax-exempt bond (+$1.5 billion) fund asset groups. The last time these mutual fund asset groups suffered net outflows was in April for taxable bonds and May for muni debt funds. The charge this week was paced by Core Bond Funds (+$1.6 billion) and Short Muni Debt Funds (+$539 million) for the taxable and tax-exempt groups, respectively.
Money Market Mutual Funds
The $17.4 billion net outflow for money market funds was driven by the Institutional U.S. Government Money Market Funds (-$11.2 billion) peer group. With the exception of Institutional U.S. Treasury Money Market Funds (+$2.5 billion) all of the money market fund peer groups saw net money leave for the week.