January 21, 2021

U.S. Weekly FundFlows Insight Report: Investors Remained Focused on Fixed Income Funds During the Fund Flows Week Despite Record Market Highs

by Tom Roseen.

Investors were overall net purchasers of fund assets (including those of conventional funds and ETFs) for the second consecutive week. They injected $6.3 billion for Refinitiv Lipper’s fund-flows week ended January 20, 2021. Fund investors padded the coffers of taxable bond funds (+$10.3 billion), equity funds (+$3.6 billion), and tax-exempt fixed income funds (+$2.4 billion), while being net redeemers of money market funds (-$10.0 billion) this week.

Market Wrap-Up

The broad-based U.S. indices finished the fund-flows week on the plus side as investors focused on the beginning of Q4 earnings season and the inauguration of President-elect Joe Biden, along with his commitment to inject another round of fiscal stimulus and plans to improve COVID-19 vaccine distribution. The continued rise in COVID-19 cases and a jump in first-time jobless claims injected a bit of market unease into the fund-flows week.

On the domestic side of the equation, investors pushed the NASDAQ Composite Price Only Index (+2.50%) 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 (+2.30%). Like last week, the Dow Jones Industrial Average Price Only Index (+0.41%) once again was the relative laggard. Overseas, the Nikkei 225 Price Only Index (+0.59%) witnessed the strongest plus-side weekly performance of the often-followed broad-based global indices, while the Xetra DAX Total Return Index (-0.59%) witnessed the largest decline.

The Dow and NASDAQ booked minor losses on Thursday, January 14, after investors learned that new weekly jobless claims from the prior week rose to their highest level since August and investors began to focus on additional fiscal spending by the incoming Biden administration. The former has triggered some inflationary concerns, with the 10-year Treasury yield jumping four basis points on the day to 1.13%, perhaps being the catalyst of the largest weekly-net inflows into Loan Participation Funds since December 21, 2016. Despite a quasi-successful beginning to the corporate earnings season on Friday, January 15, with three of the initial big banks reporting they beat their earnings estimates, the broad-based indices suffered losses after December retail sales showed a third monthly decline and individuals voiced concern over the slow rollout of the COVID-19 vaccines.

The U.S. markets were closed on Monday, January 18, 2021, in observance of Dr. Martin Luther King Jr. Day. The Dow snapped its three-day slide on January 19 after investors learned that during her Senate confirmation hearing, Treasury Secretary nominee Janet Yellen called for greater fiscal aid to help shore up the U.S. economy, saying “the smartest thing we can do is act big” while interest rates are still low.  All three benchmarks hit record closing highs on Wednesday, January 20, after Joe Biden was sworn in as the forty-sixth President of the United States. Several better-than-expected Q4 corporate earnings reports helped prop up investor optimism for the day. Gold futures closed at a near two-week high.

Exchange-Traded Equity Funds

Equity ETFs witnessed net inflows for the sixth week in a row—attracting $9.0 billion for the most recent fund-flows week. Authorized participants (APs) were net purchasers of domestic equity ETFs (+$4.8 billion), injecting money, also for the sixth week running. However, nondomestic equity ETFs witnessed net inflows for the fifth consecutive week, taking in $4.2 billion this past week. iShares MSCI EAFE Value ETF (EFV, +$2.4 billion) and Financial Select Sector SPDR Fund (XLF, +$1.7 billion) attracted the largest amounts of net new money of all individual equity ETFs. At the other end of the spectrum, iShares Core S&P 500 Fund (IVV, -$2.5 billion) experienced the largest individual net redemptions, and iShares MSCI USA Min Vol Factor ETF (USMV, -$1.4 billion) suffered the second largest net redemptions of the week.

Exchange-Traded Fixed Income Funds

For the second week in a row, taxable fixed income ETFs witnessed net inflows, taking in $4.2 billion this last week. APs were net purchasers of corporate investment-grade debt ETFs (+$3.9 billion), flexible funds (+$485 million), and government-Treasury ETFs (+$479 billion), while being net redeemers of corporate high yield ETFs (-$1.0 billion). Loan Participation ETFs, a component of the corporate investment-grade ETFs macro-group, took in $564 million for the flows week, marking their eleventh consecutive week of net inflows. iShares Core Total USD Bond Market ETF (IUSB, +$2.9 billion) and iShares Fallen Angels USD Bond ETF (FALN, +$564 million) attracted the largest amounts of net new money of all individual taxable fixed income ETFs. Meanwhile, iShares 0-5 Year High Yield Corporate Bond ETF (SHYG, -$796 million) and iShares iBoxx $ High Yield Corporate Bond ETF (HYG, -$701 million) handed back the largest individual net redemptions for the week. For the thirteenth week in a row, municipal bond ETFs witnessed net inflows, taking in $495 million this week.

Conventional Equity Funds

Conventional fund (ex-ETF) investors were net redeemers of equity funds for the fourth consecutive week, withdrawing $5.4 billion this week, with the macro-group posting a 1.45% market gain for the fund-flows week. Domestic equity funds, suffering net redemptions of slightly more than $5.8 billion, witnessed their fourth weekly net outflows while posting a 1.41% gain on average for the fund-flows week. Nondomestic equity funds—posting a 1.53% return on average—experienced their first week of net inflows in four, taking in $443 million this past week. On the domestic equity side, fund investors continued to shun large-cap funds (-$5.5 billion) and mid-cap funds (-$167 million). Investors on the nondomestic equity side were net redeemers of global equity funds (-$287 million) but padded the coffers of international equity funds (+$730 million).

Conventional Fixed Income Funds

For the fifth week in a row, taxable bond funds (ex-ETFs) witnessed net inflows—taking in $6.1 billion this past week—while posting a 0.36% return for the fund-flows week. Investors were net purchasers of corporate investment-grade debt funds (+$4.3 billion), flexible funds (+$1.2 billion), and international & global debt funds (+$523 million), while being net redeemers of balanced funds (-$609 million). The municipal bond funds group posted a 0.13% gain on average during the week and witnessed its eleventh consecutive weekly net inflows, attracting $1.9 billion this week. High Yield Municipal Debt Funds was the big attractor of investors’ assets for the week, taking in $519 million, followed closely by Short Municipal Debt Funds (+$506 million) and General & Insured Municipal Debt Funds (+$488 million).

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