by Pat Keon, CFA.
Refinitiv Lipper’s fund asset groups (including both mutual funds and ETFs) had net outflows of $45.7 billion for the fund-flows trading week ended Wednesday, September 16. Money market funds (-$50.5 billion) and equity funds (-$2.8 billion) accounted for all of the week’s net negative flows. It was the eighth consecutive weekly net outflow for money market funds and the fifth for equity funds. On the positive side of the ledger, taxable bond funds and municipal bond funds took in $7.0 billion and $612 million, respectively.
The equity indices posted mixed results for the fund-flows trading week. The Dow Jones Industrial Average recorded an increase of 1.5% while the NASDAQ Composite Index and S&P 500 Index retreated 0.8% and 0.4%, respectively.
The Dow captured the lion’s share of its gains during just two trading days on the strength of progress toward a vaccine for the coronavirus and a busy week for initial public offerings. In total, 12 companies were scheduled to go public, led by cloud computing company Snowflake. Snowflake’s IPO raised $3.4 billion, making it the largest software IPO ever, easily outdistancing the $1.0 billion raised by VMWare in 2007.
Technology stocks continued to slump, weighing down the NASDAQ. As the economy continues to recover in fits and starts from COVID-19, the current valuations of tech stocks are seen as too high. After closing at its high-water mark on September 2 (12056.44), the index has shed 8.3% over its last nine trading sessions. Prior to this recent downturn, the NASDAQ had appreciated 56.6% since the end of the first quarter as investors sought out large-cap technology stocks as a safe haven asset group to ride out the global pandemic.
The most significant market news of the week revolved around the Federal Reserve’s regularly scheduled two-day policy meeting which concluded on September 16. The Fed announced that interest rates would remain unchanged near zero and they expect them to stay there for the foreseeable future. All 17 Fed governors forecast that rates would remain near zero through the end of 2021 and 13 also predicted that rates would stay unchanged through the end of 2023. The Fed further explained that rates would be held at near zero until inflation has increased to 2.0% (and is expected to stay at or above this threshold for some time) and the labor market aligns with the Fed’s view of maximum employment.
ETFs took in net new money (+$9.9 billion) for the fourth straight week. The net positive flows were relatively evenly split between the equity (+$5.3 billion) and taxable bond (+$4.5 billion) asset groups while muni bond ETFs contributed $110 million to the total net inflows. The largest individual net inflows among equity ETFs belong to two S&P 500 products as iShares Core S&P 500 ETF (IVV) and SPDR S&P 500 ETF (SPY) grew their coffers by $4.2 billion and $2.4 billion, respectively. For taxable bond ETFs, the net positive flows were led by iShares Short Treasury Bond ETF (SHV, +$1.0 billion) and iShares Core U.S. Aggregate Bond ETF (AGG, +$647 million).
Equity Mutual Funds
Equity mutual funds (-$8.1 billion) saw net money leave for the twenty-first straight week. Domestic equity funds (-$6.0 billion) accounted for the majority of these net outflows, while nondomestic equity funds suffered net negative flows of $2.1 billion. At the peer group level, Large-Cap Core Funds (-$2.4 billion) and Emerging Market Funds (-$532 million) were responsible for the largest net outflows in the two regions.
Fixed Income Mutual Funds
The taxable bond (+$2.5 billion) and tax-exempt bond (+$532 million) fund groups extended their respective runs of consecutive weekly net inflows to 23 and 19. Core Bond Funds (+$890 million) and Core Plus Bond Funds (+$802 million) continued to lead the charge on the taxable bond fund side of things, while Short Muni Debt Funds (+$199 million) and Short/Intermediate Muni Debt Funds (+$135 million) took in the most net new money among the tax-exempt peer groups.
Money Market Mutual Funds
The trend has reversed since money market funds were the go-to asset group for investors during the initial phase of COVID-19. When pandemic fears first swept the nation, money market funds took in $1.1 trillion of net new money during an 11-week time period (early March through late May). Since then, money market funds have experienced net outflows in 16 out of 18 weeks for total net negative flows of $362 billion. This week’s significant net outflow (-$50.5 billion) was the group’s tenth largest in its history and was driven by the Institutional U.S. Government Money Market Funds (-$28.7 billion) and Institutional U.S. Treasury Money Market Funds (-$19.1 billion) peer groups.