by Pat Keon, CFA.
Refinitiv Lipper’s fund asset groups (including both mutual funds and ETFs) experienced net negative flows of $9.3 billion for the fund-flows trading week ended Wednesday, October 7. This week’s results marked the ninth straight overall net outflow for funds during which time their coffers have contracted by almost $159 billion. In this week’s activity, the net outflows were driven by money market funds (-$20.4 billion) and equity funds (-$6.0 billion). These are long-term trends for both fund asset groups as money market funds and equity funds have experienced net outflows during each of the last 11 and eight weeks, respectively. On the plus side of the ledger, taxable bond funds and municipal bond funds took in net new money of $15.3 billion and $1.7 billion.
The equity indices all recorded gains for the fund-flows trading week as the Dow Jones Industrial Average, NASDAQ Composite Index, and S&P 500 Index appreciated 1.9%, 1.8%, and 1.7%, respectively.
Despite the overall positive returns, it was a choppy week of trading for stocks as the markets experienced some volatility mostly due to the talks around a second stimulus package. There was optimism on this front during the first half of the week as the two political parties were negotiating and Federal Reserve Chairman Jerome Powell emphasized that a second stimulus bill was vital to sustain the country’s economic recovery. This momentum was lost on Tuesday, October 6, when near the end of trading for the day, President Donald Trump announced that he was halting talks on the bill and they would not resume until after the election. As expected, the markets nosedived on this news and all three equity indices closed down more than 1.0%.
Trump whipsawed the markets the next day as before the start of trading he stated that he was open to considering a number of smaller, individual stimulus bills such as bailout money for the airlines, payroll protection for smaller businesses, and another round of stimulus checks for individuals. The markets reacted enthusiastically to this and the three indices all posted increases approaching 2.0% for the day. Hopes for some type of additional stimulus pushed the yield on the 10-year Treasury note up more than 10 basis points for the week to close at 0.795%, its highest close in almost four months.
ETFs took in $5.9 billion of net new money during the week thanks in large part to the taxable bond (+$7.9 billion) asset group. These net inflows were driven by iShares 20+ Year Treasury Bond ETF (TLT, +$1.4 billion) and iShares iBoxx $ High Yield Corporate Bond ETF (HYG, +$1.2 billion). Equity ETFs suffered $2.3 billion in net negative flows for the week, with the largest belonging to SPDR S&P 500 ETF (SPY, -$6.2 billion) and Invesco QQQ ETF (QQQ, -$1.8 billion). Muni bond ETFs had net inflows of $220 million for the week.
Equity Mutual Funds
Equity mutual funds (-$3.5 billion) saw money leave for the twenty-fourth consecutive week. Domestic equity funds (-$3.5 billion) accounted for most of the net negative flows, while nondomestic equity funds contributed $276 million to the total. At the peer group level, Large-Cap Growth Funds (-$1.4 billion) and International Multi-Cap Value Funds (-$268 million) were responsible for the largest net outflows in the two regions.
Fixed Income Mutual Funds
The taxable bond (+$7.4 billion) and tax-exempt bond (+$1.5 billion) fund groups both had net positive flows for the week. The Ultra Short Obligation Funds (+$1.9 billion) and High Yield Funds (+$1.2 billion) groups led the net inflows for taxable bond funds, while Short Muni Debt Funds (+$531 million) and High Yield Muni Debt Funds (+$363 million) were the leaders among the tax-exempt bond fund peer groups.
Money Market Mutual Funds
The majority of the peer groups that fall under the money market funds umbrella experienced net outflows for the week as overall the macro-group had $20.4 billion of net negative flows. The largest net outflows among the classification groups belonged to Institutional U.S. Government Money Market Funds (-$16.1 billion) and Institutional U.S. Treasury Money Market Funds (-$9.3 billion).