by Tom Roseen.
Investors were overall net purchasers of fund assets (including those of conventional funds and ETFs) for the third week in four. They injected $22.9 billion for Refinitiv Lipper’s fund-flows week ended January 13, 2021. Fund investors padded the coffers of taxable bond funds (+$9.0 billion), money market funds (+$5.9 billion), equity funds (+$5.4 billion), and tax-exempt fixed income funds (+$2.6 billion) this week.
The broad-based U.S. indices finished up the fund-flows week in positive territory as investors continued to focus on the rollout of COVID-19 vaccines and increasing probabilities of a larger-than-originally anticipated fiscal stimulus package with a commitment from President-elect Joe Biden. The rise in COVID-19 cases and hospitalizations and concerns over new stimulus-related inflationary pressures put a cap on the rise of equities.
On the domestic side of the equation, investors pushed the NASDAQ Composite Price Only Index (+3.05%) to the top of the chart of the broadly followed U.S. indices for the fund-flows week, followed closely by the Russell 2000 Price Only Index (+2.63%). The Dow Jones industrial Average Price Only Index (+0.75%) was the relative laggard. Overseas, the Nikkei 225 Price Only Index (+4.63%) witnessed the strongest plus-side weekly performance of the often-followed broad-based global indices, while the FTSE 100 Price Only Index (-0.78%) witnessed the largest decline.
Investors pushed the four broad-based indices to new record closing highs on Thursday, January 7, as U.S service and manufacturing sector indicators improved and Congress confirmed President-elect Joe Biden’s election win. Ahead of the nonfarm payroll report, the first-time jobless claims for the week prior declined by 3,000 to 787,000 and the 10-year Treasury yield rose 2.9 basis points (bps) to 1.07% as investors appear to be betting on increasing inflationary pressures that generally go along with increased government spending. Despite receiving the worst jobs report since April on Friday, January 8, investors catapulted the U.S. benchmarks to new record highs after learning that Biden promised more financial aid for Americans offsetting the disappointing nonfarm payrolls report and resurgence in COVID-19 cases and record death toll. The Department of Labor reported that the U.S. economy lost 140,000 jobs in December, missing analysts’ forecasts of a gain of 55,000. The unemployment rate (6.7%) remained unchanged. The 10-year yield jumped five bps to 1.13% and oil gained 3.3% to close out the day at $52.50 per barrel.
On Monday, January 11, 2021, the U.S. market sagged as investors focused on the increasing numbers of COVID-19 cases, hospitalizations, and deaths. However, hopes of a large stimulus package by the incoming Biden administration, along with a commitment for better distribution of vaccines kept declines at bay. Investors generally appeared to ignore the move by Democrats to impeach President Donald Trump for a second time, but some feared it might interfere with other legislation that is needed to support the economy. On Tuesday, the Russell 2000 posted another record close. However, stock appreciation was limited as investors weighed the impact further rises in bond yields and resurgence in COVID-19 cases might have on the economy and future economic aid and Federal Reserve policy. Some pundits voiced concerns about recent moves in yields and how the Fed might begin scaling back asset purchases. Oil rose 1.8% on the day to close at $53.21/barrel. The Dow did end lower on Wednesday, January 13, after a historical House vote to impeach the President a week before he is set to leave office. Although at the closing bell the House of Representatives looked likely to vote in favor of impeachment, Senate Majority Leader Mitch McConnell said there would be no vote to remove Trump until after Biden was sworn in. The 10-year Treasury yield declined 4.5 bps to 1.09%.
Exchange-Traded Equity Funds
Equity ETFs witnessed net inflows for the fifth week in a row—attracting $14.8 billion for the most recent fund-flows week. Authorized participants (APs) were net purchasers of domestic equity ETFs (+$10.2 billion), injecting money, also for the fifth week running. However, nondomestic equity ETFs witnessed net inflows for the fourth consecutive week in a row, taking in $4.5 billion this past week. Financial Select Sector SPDR ETF (XLF, +$3.0 billion) and iShares MSCI Emerging Markets ETF (IEMG, +$1.8 billion) attracted the largest amounts of net new money of all individual equity ETFs. At the other end of the spectrum, SPDR Gold ETF (GLD, -$906 million) experienced the largest individual net redemptions, and Invesco Russell 1000 Dynamic Multifactor ETF (OMFL, -$870 million) suffered the second largest net redemptions of the week.
Exchange-Traded Fixed Income Funds
For the second week in three, taxable fixed income ETFs witnessed net inflows, taking in $3.1 billion this last week. APs were net purchasers of corporate investment-grade debt ETFs (+$3.0 billion) and government-mortgage ETFs (+$1.2 billion) while being net redeemers of corporate high yield ETFs (-$1.1 billion) and government-Treasury ETFs (-$650 million). Loan Participation ETFs took in $716 million for the flows week, their largest weekly net inflows on record going back to the week ended March 9, 2011, when we began tracking weekly ETF flows into the classification. iShares MBS ETF (MBB, +$1.1 billion) and iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD, +$639 million) attracted the largest amounts of net new money of all individual taxable fixed income ETFs. Meanwhile, iShares 20+ Year Treasury Bond ETF (TLT, -$840 million) and iShares iBoxx $ High Yield Corporate Bond ETF (HYG, -$626 million) handed back the largest individual net redemptions for the week. For the twelfth week in a row, municipal bond ETFs witnessed net inflows, taking in $437 million this week.
Conventional Equity Funds
Conventional fund (ex-ETF) investors were net redeemers of equity funds for the third consecutive week, withdrawing $9.4 billion this week, with the macro-group posting a 1.79% market gain for the fund-flows week. Domestic equity funds, suffering net redemptions of slightly less than $8.1 billion, witnessed their third weekly net outflows while posting a 1.93% gain on average for the fund-flows week. Nondomestic equity funds—posting a 1.49% return on average—experienced their third week of net outflows in a row, handing back $1.3 billion this past week. On the domestic equity side, fund investors continued to shun large-cap funds (-$6.8 billion) and mid-cap funds (-$762 million). Investors on the nondomestic equity side were net redeemers of international equity funds (-$618 million) and global equity funds (-$641 million).
Conventional Fixed Income Funds
For the fourth week in a row, taxable bond funds (ex-ETFs) witnessed net inflows—taking in $6.0 billion this past week—while posting a 0.18% return for the fund-flows week. Investors were net purchasers of corporate investment-grade debt funds (+$3.9 billion), flexible funds (+$893 million), and international & global debt funds (+$678 million) while being net redeemers of balanced funds (-$133 million). The municipal bond funds group posted a 0.02% loss on average during the week and witnessed its tenth consecutive weekly net inflows, attracting $2.2 billion this week, their third largest weekly net inflows on record dating back to 1992. High Yield Municipal Bond Funds took in $984 million this past week, a record weekly amount.
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