September 10, 2020

U.S. Weekly FundFlows Insight Report: Equity ETFs See Money Infusion as Mutual Fund Investors Withdraw Cash

by Tom Roseen.

For the fifth week in a row, investors were overall net redeemers of fund assets (including those of conventional funds and ETFs), withdrawing $21.8 billion for Refinitiv Lipper’s fund-flows week ended September 9, 2020. The topline number, however, is a little misleading. Fund investors were net purchasers of taxable fixed income funds (+$6.5 billion) and municipal bond funds (+$1.0 billion) while being net redeemers of equity funds (-$1.9 billion) and money market funds (-$27.4 billion) this week.

Market Wrap-Up

U.S. markets witnessed large declines during the fund-flows week after investors did a little profit taking of FAANG and other stay-at-home stocks after their recent meteoric run, with the Dow Jones Industrial Average, S&P 500, and NASDAQ composite witnessing their largest one-day drops since June. During the fund-flows week, the NASDAQ experienced its fastest correction on record, but even that was erased on the last day of trading.

On the domestic side of the equation, the NASDAQ Composite Price Only Index (-7.59%) witnessed the largest declines for the fund-flows week of the broadly followed U.S. indices, while the Dow Jones Industrial Average Price Only Index (-3.99%) did the best job of mitigating losses of the group. Overseas, the Xetra DAX Total Return Index (-0.31%) mitigated losses better than the other often-followed broad-based global indices, while the Shanghai Composite Price Only Index (-4.69%) suffered the largest decline.

On Thursday, September 3, technology and other high-flying stay-at-home stocks were pummeled as investors questioned the sustainability of the recent stock market record highs and Congress’ ability to strike a deal on another round of economic relief. On Friday, September 4, the market darlings of late continued their decline as investors continued to take profits off the table ahead of the three-day Labor Day holiday despite learning that the U.S. economy regained 1.4 million jobs in August and the unemployment rate declined to 8.4%, beating analyst expectations. While near-month crude oil futures declined based on withering market demand, gold futures also suffered losses for the third straight day.

The U.S. markets were closed on Monday, September 7, in observance of Labor Day. On Tuesday, September 8, investors pushed the NASDAQ into correction territory, declining 10% from its recent market high on September 2 as investors weighed President Donald Trump’s recent threat to decouple the U.S. economy from China, the upcoming U.S. elections, and continued concerns with the coronavirus pandemic. However, on Wednesday, investors pushed the NASDAQ to its best daily percentage gain (+2.71%) since late April as technology stocks lead the rally again.

Exchange-Traded Equity Funds

For the second week in a row, equity ETFs witnessed net inflows, attracting $6.0 billion for the most recent fund-flows week. Authorized participants (APs) were net purchasers of domestic equity ETFs (+$5.1 billion), injecting money also for the second consecutive week. And for the fifth week running, nondomestic equity ETFs witnessed net inflows, taking in $871 million this past week. SPDR S&P 500 ETF (SPY, +$7.4 billion) and ProShares UltraPro QQQ ETF (TQQQ, +$1.1 billion) attracted the largest amounts of net new money of all individual equity ETFs. At the other end of the spectrum, Consumer Discretionary Select Sector SPDR ETF (XLY, -$762 million) experienced the largest individual net redemptions, and iShares Russell 1000 Growth ETF (IWF, -$433 million) suffered the second largest net redemptions of the week.

Exchange-Traded Fixed Income Funds

Taxable fixed income ETFs witnessed net inflows for the third week in a row, taking in $601 million this last week. APs were net purchasers of corporate investment-grade debt ETFs (+$1.4 billion) and international & global debt ETFs (+$253 million) while being net redeemers of corporate high yield ETFs (-$831 million) and government-Treasury ETFs (-$101 million). iShares U.S. Treasury Bond ETF (GOVT, +$263 million) and iShares Core U.S. Aggregate Bond ETF (AGG, +$238 million) attracted the largest amounts of net new money of all individual taxable fixed income ETFs. Meanwhile, iShares 20+ Year Treasury Bond ETF (TLT, -$766 million) and iShares iBoxx $ High Yield Corporate Bond ETF (HYG, -$702 million) handed back the largest individual net redemptions for the week. For the first week in three, municipal bond ETFs witnessed net inflows, taking in $256 million this week.

Conventional Equity Funds

Conventional fund (ex-ETF) investors were net redeemers of equity funds for the twentieth week in a row, withdrawing $7.8 billion, with the macro-group posting a 4.35% decline for the fund-flows week (its first weekly decline in 11). Domestic equity funds, suffering net redemptions of slightly more than $6.2 billion, witnessed their thirteenth consecutive weekly net outflows while posting a 4.97% loss on average for the fund-flows week. Nondomestic equity funds—posting a 2.95% decline on average—experienced their third consecutive week of net outflows, handing back $1.6 billion this past week. On the domestic equity side, fund investors continued to shun large-cap funds (-$4.3 billion) and small-cap funds (-$482 million). Investors on the nondomestic equity side were net redeemers of international equity funds (-$1.0 billion) and global equity funds (-$610 million).

Conventional Fixed Income Funds

For the twenty-second week in a row, taxable bond funds (ex-ETFs) witnessed net inflows—taking in $5.9 billion this past week—while posting a 0.88% loss for the fund-flows week. Investors were net purchasers of corporate investment-grade debt funds (+$5.2 billion) and government-Treasury and mortgage funds (+$253 million), while balanced funds (-$167 million) witnessed the largest net outflows of the group. For the eighteenth consecutive week, municipal bond funds (ex-ETFs) witnessed net inflows, taking in $749 million. The fund group posted a 0.03% return on average, posting its first plus-side return in four weeks.

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