November 19, 2020

U.S. Weekly FundFlows Insight Report: COVID-19 Vaccine Rally Keeps Fund Flows on the Plus Side for the Week

by Tom Roseen.

Once again, investors were overall net purchasers of fund assets (including those of conventional funds and ETFs) for the second week in a row. They injected $15.8 billion for Refinitiv Lipper’s fund-flows week ended November 18, 2020, as investors vacillated between elation over COVID-19 vaccine news from Moderna and Pfizer/BioNTech and despair because of the record rise of positive cases and announcements of new lockdowns. Fund investors were net purchasers of both short- and long-term assets, putting $5.6 billion into taxable bond funds, $4.9 billion into equity funds, $3.9 billion into money market funds, and $1.3 billion into municipal bond funds this week.

Market Wrap-Up

After hitting new record closing highs during the fund-flows week, returns in the U.S. markets finished on a down note as investors questioned whether the vaccine news-related rally might have been a little over celebrated in the face of record setting COVID-19 cases and hospitalizations, with infection rates rising in all 50 states of the union. The broad-based indices hit record closing highs on two of the five trading days during the flows week as investors cheered another pharmaceutical firm, Moderna Inc., confirming that its COVID-19 vaccine was 94.5% effective at preventing infections in late-stage trials.  However, sobering remarks from Federal Reserve Chair Jerome Powell on the urgency of additional fiscal help set a dour mood late in the week.

On the domestic side of the equation, small-cap, value, and cyclical stocks continued to be in favor as investors sold some of their recently popular “stay-at-home” and technology issues. The Russell 2000 Price Only Index (+1.86%) witnessed the strongest returns for the fund-flows week of the broadly followed U.S. indices, while the S&P 500 Price Only Index (-0.14%) witnessed the only negative returns for the flows week. Overseas, the Nikkei 225 Price Only Index (+3.41%) chalked up the strongest plus-side returns of the often-followed broad-based global indices, while the FTSE 100 Price Only Index (+0.86%) posted the weakest returns.

On Thursday, November 12, U.S. stocks finished markedly lower—despite Moderna announcing that its vaccine was ready for analysis—as investors appeared to show growing concern over the near-term impact a significant rise in U.S. COVID-19 cases and hospitalizations will have on the markets and the general economy. In related comments, Fed Chair Jerome Powell said a vaccine was not a panacea to the immediate risks facing the economy. According to the Wall Street Journal, the COVID Tracking Project reported that the U.S. averaged 128,081 cases per day over the preceding week, registering a 69% increase from the average from two weeks ago. However, on Friday, November 13, stocks rallied to new record highs as optimism over COVID-19 vaccines and treatments appeared to outweigh the spike in outbreaks in the U.S. and Europe. The Russell 2000 small-cap index notched fresh new highs on the day as better-than-expected Q3 earnings reports from the likes of Walt Disney and Cisco Systems helped boost the vaccine-related buying mood.

U.S. stocks continued their record setting run on Monday, November 16, with the Dow, the S&P 500, and the Russell 2000 each setting new closing highs as the rotation out of growth-oriented tech stocks and into out-of-favor issues continued amid further vaccine progress. However, the rally was short lived, with the S&P 500 and the Dow suffering declines on Tuesday, November 17, after the report on retail sales showed the slowest growth in six months. With no additional economic aid in sight from U.S. lawmakers, social distancing measures being reimposed across much of the country, and reported COVID-19 cases and hospitalization rising to alarming highs in all 50 states, it wasn’t too surprising to see some market retracement. On Wednesday, markets fell once again after New York City officials said its public-school system will close in an effort to contain the virus spread. The resurgence in coronavirus cases took center stage late in the fund-flows week, knocking the recent market rally off track.

Exchange-Traded Equity Funds

Equity ETFs witnessed net inflows for the third week in a row—attracting $7.0 billion for the most recent fund-flows week. Authorized participants (APs) were net purchasers of domestic equity ETFs (+$5.2 billion), injecting money also for the third consecutive week. However, nondomestic equity ETFs witnessed net inflows for the second week in a row, attracting $1.8 billion this past week. iShares Core S&P Small-Cap ETF (IJR, +$671 million) and iShares Core S&P 500 ETF (IVV, +$514 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, -$2.0 billion) experienced the largest individual net redemptions, and SPDR Gold ETF (GLD, -$1.3 billion) suffered the second largest net redemptions of the week.

Exchange-Traded Fixed Income Funds

For the second week running, taxable fixed income ETFs witnessed net inflows, taking in $2.5 billion this last week. APs were net purchasers of corporate investment-grade debt ETFs (+$2.0 billion) and government-mortgage ETFs (+$465 million) while being net redeemers of government-Treasury ETFs (-$698 million). iShares iBoxx $ Investment-Grade Corporate Bond ETF (LQD, +$738 billion) and iShares MBS ETF (MBB, +$440 million) attracted the largest amounts of net new money of all individual taxable fixed income ETFs. Meanwhile, iShares iBoxx $ High Yield Corporate Bond ETF (HYG, -$387 million) and iShares 1-3 Year Treasury Bond ETF (SHY, -$328 million) handed back the largest individual net redemptions for the week. For the fourth week in a row, municipal bond ETFs witnessed net inflows, taking in $558 million this week.

Conventional Equity Funds

Conventional fund (ex-ETF) investors were net redeemers of equity funds for the thirtieth week in a row, withdrawing $2.1 billion this week, with the macro-group posting a 0.57% market gain for the fund-flows week. Domestic equity funds, suffering net redemptions of slightly more than $1.9 billion, witnessed their twenty-third consecutive weekly net outflows while posting a 0.42% gain on average for the fund-flows week. Nondomestic equity funds—posting a 0.90% return on average—experienced their thirteenth consecutive week of net outflows, handing back $248 million this past week. On the domestic equity side, fund investors continued to shun large-cap funds (-$2.5 billion), while equity income funds were the main attractors of investors’ assets (+$462 million). Investors on the nondomestic equity side were net redeemers of international equity funds (-$203 million) and global equity funds (-$44 million).

Conventional Fixed Income Funds

For the second week in a row, taxable bond funds (ex-ETFs) witnessed net inflows—taking in $3.1 billion this past week—while posting a 0.40% return for the fund-flows week. Investors were net purchasers of corporate investment-grade debt funds (+$2.2 million), international & global debt funds (+$303 million), and corporate high-yield funds (+$178 million). Corporate high-quality funds (-$21 million) witnessed the only net outflows of the fixed income macro-groups for the week. The municipal bond funds group posted a 0.59% return on average during the week and witnessed its second consecutive weekly net inflows, attracting $770 million this week.

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