by Tom Roseen.
Investors were overall net purchasers of fund assets (including those of conventional funds and ETFs) for the first week in 14. They injected $27.7 billion for Refinitiv Lipper’s fund-flows week ended November 11, 2020, as they cheered the announcement of a successful Phase 3 study of a COVID-19 vaccine by Pfizer and BioNTech. Fund investors were net purchasers of long-term assets, putting $23.8 billion into equity funds (their third largest weekly net inflows on record going back to 1992), $7.1 billion into taxable bond funds, and $1.2 billion into municipal bond funds. Meanwhile, money market funds (-$4.4 billion) witnessed the only net redemptions of the group this week.
Returns in the U.S. markets finished on a soft note for the fund-flows week as investors questioned whether the recent vaccine-related rally might have been a little excessive in the face of record setting COVID-19 cases in at least 17 states. Nonetheless, the broad-based indices neared new record highs during the week as investors ingested news that Joe Biden was projected as the winner of the presidential election by the AP, but the blue wave predicted by many polls did not materialize. Many pundits believe that a divided government, with the GOP appearing to maintain control of the Senate, decreases the uncertainty of potential policy changes. This along with Pfizer and BioNTech’s announcement catapulted the broad-based U.S. indices to their best one-week returns since the fund-flows week ended May 11, 2020.
On the domestic side of the equation, small-cap, value, and cyclical issues got a boost as investors initially turned their backs on the recently popular “stay-at-home” and technology issues. The Russell 2000 Price Only Index (+7.54%) witnessed the strongest returns for the fund-flows week of the broadly followed U.S. indices, while the NASDAQ Composite Price Only Index (+1.70%) was the relative laggard. Overseas, the FTSE 100 Price Only Index (+10.21%) and the Xetra DAX Total Return Index (+7.69%) chalked up the strongest plus-side returns of the often-followed broad-based global indices, while the Shanghai Composite Price Only Index (+3.41%) posted the weakest returns.
On Thursday, November 5, U.S. stocks finished sharply higher as investors appeared to embrace the idea of a divided government, which might indicate fewer legislative initiatives that could threaten corporate earnings. As was broadly expected, the Federal Reserve Board left policy unchanged after its two-day policy-setting meeting but reiterated its stance that more fiscal stimulus is needed to prop up the economy. Despite learning that the number of U.S. COVID-19 cases hit a new daily record, investors embraced the news that first-time jobless claims declined during the prior week. Stocks snapped a four-day winning streak on Friday, November 6, as investors kept a close eye on U.S. election results and evaluated a surge in new coronavirus cases and hospitalizations. Declines, however, were mooted after the Labor Department reported that the U.S. economy added 638,000 jobs in October, beating analyst expectations of 503,000. The unemployment rate dropped to 6.9% from 7.9% in September.
However, U.S. stocks posted their strongest one-day gain in five months on Monday, November 9, with the Dow rising 834.57 points after Pfizer and BioNTech announced that their COVID-19 vaccine achieved success during the analysis of a Phase 3 study, and company officials were planning on requesting Emergency Use Authorization from the Food and Drug Administration. This news sparked a strong rotation into cyclical and out-of-favor issues, while tech stocks were pressured. On Tuesday, the rotation away from the high-flying tech issues continued, although investors kept a keen eye on COVID-19 cases and focused on the ongoing questions surrounding the transition to a new U.S. administration following last week’s elections, leading to choppy trade for the day. During the fund-flows week, the 10-year Treasury yield jumped to 0.97% and oil futures rose to $43.61 per barrel on vaccine related news. On Wednesday, the Dow snapped its two-day winning streak as the NASDAQ regained some of its prior days’ losses as investors weighed the impact of rising coronavirus cases and new curfews, with the U.S. setting records for hospitalizations in 17 states. The bond market was closed on Wednesday in observation of Veterans Day in the U.S.
Exchange-Traded Equity Funds
Equity ETFs witnessed net inflows for the second week in a row—attracting a whopping $26.0 billion for the most recent fund-flows week, their strongest since November 16, 2016. Authorized participants (APs) were net purchasers of domestic equity ETFs (+$23.5 billion), injecting money also for the second consecutive week. However, nondomestic equity ETFs witnessed net inflows for the first week in three, attracting $2.6 billion this past week. SPDR S&P 500 ETF (SPY, +$13.7 billion) and iShares Russell 2000 ETF (IWM, +$1.3 billion) attracted the largest amounts of net new money of all individual equity ETFs. At the other end of the spectrum, Invesco QQQ Trust 1 (QQQ, -$1.4 billion) experienced the largest individual net redemptions, and Consumer Staples Select Sector SPDR ETF (XLP, -$901 million) suffered the second largest net redemptions of the week.
Exchange-Traded Fixed Income Funds
For the first week in three, taxable fixed income ETFs witnessed net inflows, taking in $1.8 billion this last week. APs were net purchasers of corporate high-yield ETFs (-$3.5 billion) and corporate investment-grade debt ETFs (-$1.1 billion) while being net redeemers of government-Treasury ETFs (-$4.0 billion). iShares iBoxx $ High Yield Corporate Bond ETF (HYG, +$2.4 billion) and SPDR Bloomberg Barclays High Yield Bond ETF (JNK, +$791 billion) attracted the largest amounts of net new money of all individual taxable fixed income ETFs. Meanwhile, iShares 7-10 Year Treasury Bond ETF (IEF, -$1.4 billion) and iShares 20+ Year Treasury Bond ETF (TLT, -$1.1 billion) handed back the largest individual net redemptions for the week. For the third week in a row, municipal bond ETFs witnessed net inflows, taking in $618 million this week.
Conventional Equity Funds
Conventional fund (ex-ETF) investors were net redeemers of equity funds for the twenty-ninth week in a row, withdrawing $2.2 billion this week, with the macro-group posting a 3.92% market gain for the fund-flows week (its second consecutive week of big plus-side returns). Domestic equity funds, suffering net redemptions of slightly more than $1.6 billion, witnessed their twenty-second consecutive weekly net outflows while posting a 3.59% gain on average for the fund-flows week. Nondomestic equity funds—posting a 4.66% return on average—experienced their twelfth consecutive week of net outflows, handing back $562 million this past week. On the domestic equity side, fund investors continued to shun large-cap funds (-$2.4 billion), while equity income funds were the main attractors of investors’ assets (+$316 million). Investors on the nondomestic equity side were net redeemers of global equity funds (-$662 million) while being net purchasers of international equity funds (+$100 million).
Conventional Fixed Income Funds
For the fifth week in six, taxable bond funds (ex-ETFs) witnessed net inflows—taking in $5.4 billion this past week—while posting a 0.92% return for the fund-flows week. Investors were net purchasers of corporate investment-grade debt funds (+$2.4 million), corporate high-yield funds (+$1.1 billion), and flexible funds (+$508 million). None of the broad-based fixed income fund groups witnessed net outflows for the week. The municipal bond funds group posted a 0.15% return on average during the week and witnessed its fifth weekly net inflows in six, attracting $549 million this week.
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