by Tom Roseen.
Despite a red-hot stock market, for the fourth week in a row, investors were overall net redeemers of fund assets (including those of conventional funds and ETFs), withdrawing $36.9 billion for Refinitiv Lipper’s fund-flows week ended September 2, 2020. Fund investors were net purchasers of taxable fixed income funds (+$12.3 billion) and municipal bond funds (+$139 million) while being net redeemers of equity funds (-$8.0 billion) and money market funds (-$41.3 billion) this week.
U.S. markets hit new record highs during the fund-flows week after Wall Street recorded its strongest August return in decades as positive economic data, the Federal Reserve’s assertion that it will no longer preemptively hike interest rates to keep inflation at bay, and vaccine hopes kept some investors engaged.
On the domestic side of the equation, the NASDAQ Composite Price Only Index (+3.36%) witnessed the strongest plus-side return for the fund-flows week of the broadly followed U.S. indices, while the Russell 2000 Price Only Index (+2.06%) was the group’s relative laggard. Overseas, the Shanghai Composite Price Only Index (+3.24%) once again chalked up the largest plus-side return of the often-followed broad-based global indices, while the FTSE 100 Price Only Index (-0.90%) suffered the largest decline.
On Thursday, August 27, equities witnessed small gains as investors assessed the implications of the Fed’s new policy shift. Federal Reserve Board Chair Jerome Powell outlined a new policy in which the Fed would allow employment and inflation to run higher than in the past, permitting inflation to rise over the target rate of 2.0% before hiking rates. The 10-year Treasury yield rose five basis points (bps) to 0.74%, its highest close since June 17. Keeping a lid on gains, first time jobless claims for the week prior came in at 1.01 million in line with expectations, while continuing claims declined slightly to 14.5 million. However, on Friday, August 28, the Dow erased its year-to-date losses, while the NASDAQ and S&P 500 closed at new highs on the day after data showed that U.S. personal income rose 0.4% in July and consumer spending rose 1.9%, both beating analyst expectations.
On Monday, August 31, U.S. stocks closed slightly lower on the day, but the Dow and S&P 500 booked their strongest August returns in 36 years. The NASDAQ, bucking the trend, posted yet another record high as investors interpreted that the Fed’s policy shift implied the central bank would keep rates low for an extended period. On Tuesday, September 1, investors pushed the U.S. markets to another round of record closes after American manufacturers showed a fourth straight monthly rise in August, with the ISM manufacturing purchasing managers index rising to 56% from 54.2% in July. Despite a poor August ADP private sector jobs announcement on Wednesday, stocks booked another round of record closes—the NASDAQ recorded its forty-third record close for 2020—as investors embraced news of progress in treatments and vaccines for COVID-19.
Exchange-Traded Equity Funds
For the first week in three, equity ETFs witnessed net inflows, attracting $3.2 billion for the most recent fund-flows week. Authorized participants (APs) were net purchasers of domestic equity ETFs (+$2.7 billion), injecting money for the first week in three. And for the fourth consecutive week, nondomestic equity ETFs witnessed net inflows, taking in $465 million this past week. iShares MSCI USA Value Factor ETF (VLUE, +$900 million) and Goldman Sachs ActiveBeta U.S. Large Cap Equity ETF (GSLC, +$850 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, -$4.5 billion) experienced the largest individual net redemptions, and iShares Core S&P 500 ETF (IVV, -$595 million) suffered the second largest net redemptions of the week.
Exchange-Traded Fixed Income Funds
For the second week in a row, taxable fixed income ETFs witnessed net inflows, taking in $1.1 billion this last week. APs were net purchasers of investment-grade debt ETFs (+$686 million) and flexible ETFs (+$416 million) while being net redeemers of government-Treasury ETFs (-$878 million). iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD, +$326 million) and iShares JP Morgan USD Emerging Markets Bond ETF (EMB, +$304 million) attracted the largest amounts of net new money of all individual taxable fixed income ETFs. Meanwhile, iShares 20+ Year Treasury Bond ETF (TLT, -$716 million) and PIMCO Enhanced Short Maturity Active ETF (MINT, -$471 million) handed back the largest individual net redemptions for the week. For the second consecutive week, municipal bond ETFs witnessed net outflows, handing back $458 million this week.
Conventional Equity Funds
For the nineteenth week in a row, conventional fund (ex-ETF) investors were net redeemers of equity funds, withdrawing $11.2 billion, with the macro-group posting a 2.19% market return for the fund-flows week (its tenth consecutive week of plus-side returns). Domestic equity funds, suffering net redemptions of slightly less than $9.0 billion, witnessed their twelfth consecutive weekly net outflows while posting a 2.74% return on average for the fund-flows week. Nondomestic equity funds—posting a 0.99% return on average—experienced their second consecutive week of net outflows, handing back $2.2 billion this past week. On the domestic equity side, fund investors shunned large-cap funds (-$6.8 billion) and mid-cap funds (-$936 million). Investors on the nondomestic equity side were net redeemers of international equity funds (-$1.8 billion) while being net redeemers of global equity funds (-$422 million).
Conventional Fixed Income Funds
For the twenty-first week in a row, taxable bond funds (ex-ETFs) witnessed net inflows—taking in $11.2 billion this past week—while posting a 0.79% return for the fund-flows week. Investors were net purchasers of corporate investment-grade debt funds (+$10.0 billion) and government-Treasury and mortgage funds (+$445 million), while balanced funds (-$71 million) witnessed the largest net outflows of the group. For the seventeenth consecutive week, municipal bond funds (ex-ETFs) witnessed net inflows, taking in $597 million. The fund group posted a 0.02% loss on average, suffering negative returns for the third consecutive fund-flows week.