August 20, 2020

U.S. Weekly FundFlows Insight Report: Investors Sour on Equity and Bond ETFs During the Fund-Flows Week

by Tom Roseen.

For the second week in a row, investors were overall net redeemers of fund assets (including those of conventional funds and ETFs), withdrawing $10.2 billion for Refinitiv Lipper’s fund-flows week ended August 19, 2020. Fund investors were net purchasers of taxable fixed income funds (+$5.9 billion) and municipal bond funds (+$1.8 billion) while being net redeemers of equity funds (-$6.6 billion) and money market funds (-$11.4 billion) this week.

Market Wrap-Up

Markets were mixed during the fund-flows week as investors weighed news of better-than-expected first time jobless claims and second quarter earnings from Lowe’s and Target against the Federal Reserve Board’s July policy-setting meeting minutes that urged Congress to provide more pandemic aid.

On the domestic side of the equation, the NASDAQ Composite Price Only Index (+1.22%) witnessed the only plus-side return for the fund-flows week of the broadly followed U.S. indices, while the Dow Jones Industrial Average Price Only Index (-1.01%) was the group laggard. Overseas, however, the Shanghai Composite Price Only Index (+3.22%) chalked up the largest plus-side return of the often-followed broad-based global indices, while the FTSE 100 Price Only Index (-1.71%) witnessed the only decline.

On Thursday, August 13, equities were flat as investors appeared reluctant to push the benchmarks higher as they grappled with the dichotomy between the stalemate over a new coronavirus aid package on Capitol Hill and a better-than-expected weekly report on first-time jobless claims in the U.S., which fell to 963,000, beating analyst expectations. While President Donald Trump signed an executive order over the weekend partially extending some of the relief measures, many felt the order would face legal challenges. On the day, near-month crude oil futures declined after the International Energy Agency cut its demand forecast.

However, on Friday, August 14, equities witnessed small gains despite investors learning that gains in U.S. retail sales came in a lower-than-expected 1.2% in July, weaker than the 2.0% expected by analysts. News that the virtual trade talks between the U.S. and China scheduled for the weekend had been postponed indefinitely capped market advances. On the bright side, Q2 productivity rose by 7.3%. Near-month gold prices declined for the first week in 10, falling 1.1%, settling at $1,949.80 per ounce.

The NASDAQ posted another record high on Monday, August 17—its thirty-third record close for 2020— despite the impasse in Congress over providing fresh stimulus to Americans and businesses hurt by the pandemic and news that the Empire State Index fell to 3.7 in August, signaling slower regional growth. On Tuesday, the S&P 500 (its first since February 19) and the NASDAQ both recorded record closing highs on the day. Two of the nation’s largest retailers, Home Depot and Walmart, reported better-than-expected Q2 earnings, providing a temporary boost to the benchmarks. Nonetheless, on Wednesday, August 17, U.S. stocks declined after the Fed’s July meeting minutes showed the staff cut their economic growth forecast for the remainder of 2020 and highlighted the need for more fiscal stimulus in the wake of the pandemic.

Exchange-Traded Equity Funds

For the second week in three, equity ETFs witnessed net outflows, handing back $1.5 billion for the most recent fund-flows week. Authorized participants (APs) were net sellers of domestic equity ETFs (-$3.4 billion), withdrawing money for the second week in three. However, for the first week in three, nondomestic equity ETFs witnessed net inflows, taking in $907 million this past week. iShares Core MSCI EAFE ETF (IEFA, +$1.6 billion) and Utilities Select Sector SPDR ETF (XLU, +$380 million) attracted the largest amounts of net new money of all individual equity ETFs. At the other end of the spectrum, SPDR S&P 500 ETF (SPY, -$2.4 billion) experienced the largest individual net redemptions, and iShares Russell 1000 Growth ETF (IWF, -$676 million) suffered the second largest net redemptions of the week.

Exchange-Traded Fixed Income Funds

For the first week in 21, taxable fixed income ETFs witnessed net outflows, handing back $1.6 billion this last week. APs were net redeemers of corporate high-yield ETFs (-$1.2 billion) and corporate investment-grade debt ETFs (-$836 million) while being net purchasers of flexible ETFs (+$240 million) and international & global debt ETFs (+$171 million). iShares TIPS Bond ETFs (TIP, +$340 million) and Xtrackers USD High Yield Corporate Bond ETF (HYLB, +$230 million) attracted the largest amounts of net new money of all individual taxable fixed income ETFs. Meanwhile, iShares iBoxx $ High Yield Corporate Bond ETF (HYG, -$1.2 billion) and iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD, -$802 million) handed back the largest individual net redemptions for the week. For the sixteenth consecutive week, municipal bond ETFs witnessed net inflows, taking in $88 million this week.

Conventional Equity Funds

For the seventeenth week in a row, conventional fund (ex-ETF) investors were net redeemers of equity funds, withdrawing $5.1 billion, with the macro-group posting a 0.01% market return for the fund-flows week. Domestic equity funds, suffering net redemptions of slightly more than $5.9 billion, witnessed their tenth consecutive weekly net outflows while posting a 0.01% market loss on average for the fund-flows week. Nondomestic equity funds—posting a 0.04% return on average—experienced their first week of net inflows in 20, taking in $866 million this past week. On the domestic equity side, fund investors shunned large-cap funds (-$4.4 billion) and small-cap funds (-$899 million). Investors on the nondomestic equity side were net purchasers of international equity funds (+$1.3 billion) while being net redeemers of global equity funds (-$387 million).

Conventional Fixed Income Funds

For the nineteenth week in a row, taxable bond funds (ex-ETFs) witnessed net inflows—taking in $7.5 billion this past week—while posting a 0.24% loss for the fund-flows week. Investors were net purchasers of corporate investment-grade debt funds (+$6.0 billion) and corporate high-yield debt funds (+$882 million), while balanced funds (-$146 million) witnessed the largest net outflows of the group. For the fifteenth consecutive week, municipal bond funds (ex-ETFs) witnessed net inflows, taking in $1.7 billion. The fund group posted a 0.32% loss on average, suffering negative returns for the first week in 16.


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