January 28, 2021

U.S. Weekly FundFlows Insight Report: Municipal Bond Funds Attract Second Largest Weekly Net Inflows on Record for Fund-Flows Week

by Tom Roseen.

Investors were overall net purchasers of fund assets (including those of conventional funds and ETFs) for the third consecutive week. They injected $33.4 billion for Refinitiv Lipper’s fund-flows week ended January 27, 2021. Fund investors padded the coffers of money market funds (+$21.0 billion), taxable bond funds (+$7.9 billion), tax-exempt fixed income funds (+$2.8 billion, their second largest weekly net inflows on record), and equity funds (+$1.6 billion) this week.

Market Wrap-Up

The broad-based U.S. indices finished the fund-flows week on a negative note as investors focused on the mixed Q4 earnings reports, snags in vaccine distributions, and new COVID-19 lockdowns. The continued rise in COVID-19 cases and a comment by Federal Reserve Board Chair Jerome Powell that the economy remained far from a recovery added to recent market volatility during the week.

On the domestic side of the equation, the NASDAQ Composite Price Only Index (-1.39%) mitigated losses better than the other broadly followed U.S. indices for the fund-flows week, followed by the Russell 2000 Price Only Index (-2.40%). Like last week, the Dow Jones Industrial Average Price Only Index (-2.84%) once again was the group laggard. Overseas, the Nikkei 225 Price Only Index (-0.12%) also mitigated losses better than the other often-followed broad-based global indices, while the Xetra DAX Total Return Index (-2.28%) witnessed the largest decline.

The NASDAQ and the S&P 500 were able to eke out new record highs during President Joe Biden’s first full day in office on Thursday, January 21, after investors evaluated the possibility of Biden’s prospects to fight the COVID-19 pandemic, improve vaccination distribution, and help the economic recovery with his newly proposed $1.9 trillion relief package. A decline in new weekly jobless claims from the week prior helped support the market. Despite the Dow and S&P ending lower on Friday, January 22, the Russell 2000 rose 1.2% on the day to finish at a new record high. The broader market indices struggled after reports indicated new lockdown measures in Europe are taking a greater economic toll than was anticipated and President Biden’s proposed relief package was facing some strong headwinds in the Senate.

The S&P 500 and NASDAQ posted record closing highs on Monday, January 25, 2021, as investors prepared for a torrent of technology firm Q4 earnings reports during the week, while keeping a keen eye on rising cases of COVID-19, increasing lockdowns, and a brewing battle between short sellers and speculative buyers of GameStop, which has risen a reported 1,700% in January through the fund-flows week. Stocks finished lower on Tuesday, January 26, as investors plowed through a plethora of high-profile earnings reports during one of the busiest weeks of the earnings season. The Federal Reserve kicked off its first policy meeting of 2021 with most pundits expecting no policy or asset purchase changes. On Wednesday, January 27, U.S. stocks witnessed their worst market decline since October after Fed Chair Powell stressed a long road to recovery during comments following the Federal Open Market Committee (FOMC)’s first meeting of the year. Markets were also roiled by a short squeeze war between speculators and the short-selling community of GameStop and a few other companies. The 10-year Treasury yield finished down six basis points (bps) for the fund-flows week, to close at 1.04%, as investors were in a risk-off mode, despite learning that the U.S durable goods orders rose for the eighth consecutive month.

Exchange-Traded Equity Funds

Equity ETFs witnessed net inflows for the seventh week in a row—attracting $2.7 billion for the most recent fund-flows week. Authorized participants (APs) were net purchasers of domestic equity ETFs (although only to the tune of $228 million), injecting money, also for the seventh week running. However, nondomestic equity ETFs witnessed net inflows for the sixth consecutive week, taking in $2.5 billion this past week. iShares MSCI EAFE Value ETF (EFV, +$825 million) and First Trust Industrials/Producer Durables AlphaDEX ETF (FXR, +$715 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, -$4.4 billion) experienced the largest individual net redemptions, and iShares MSCI USA Quality Factor ETF (QUAL, -$1.1 billion) 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 outflows, but handing back just $193 million this last week. APs were net purchasers of corporate investment-grade debt ETFs (+$813 million) and flexible ETFs (+$616 million), while being net redeemers of corporate high yield ETFs (-$1.2 billion) and government-Treasury ETFs (-$275 million). Loan Participation ETFs, a component of the corporate investment-grade ETFs macro-group, took in $118 million for the flows week, marking their twelfth consecutive week of net inflows. iShares Core Total USD Bond Market ETF (IUSB, +$548 million) and JPMorgan High Yield Research Enhanced ETF (JPHY, +$527 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, -$2.0 billion) and iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD, -$1.5 billion) handed back the largest individual net redemptions for the week. For the fourteenth week in a row, municipal bond ETFs witnessed net inflows, taking in $635 million this week, their second largest weekly net inflows on record.

Conventional Equity Funds

Conventional fund (ex-ETF) investors were net redeemers of equity funds for the fifth consecutive week, withdrawing $1.1 billion this week, with the macro-group posting a 3.50% market loss for the fund-flows week. Domestic equity funds, suffering net redemptions of slightly more than $1.4 billion, witnessed their fifth weekly net outflows while witnessing a 3.59% loss on average for the fund-flows week. Nondomestic equity funds—experiencing a 3.30% weekly decline on average—experienced their second week of net inflows in a row, taking in $322 million this past week. On the domestic equity side, fund investors continued to shun large-cap funds (-$1.6 billion) and mid-cap funds (-$238 million). Investors on the nondomestic equity side padded the coffers of international equity funds (+$282 million) and global equity funds (+$40 million).

Conventional Fixed Income Funds

For the sixth week in a row, taxable bond funds (ex-ETFs) witnessed net inflows—taking in $8.1 billion this past week (their sixth largest weekly inflow on record)—while posting a 0.59% loss for the fund-flows week. Investors were net purchasers of corporate investment-grade debt funds (+$5.2 billion), flexible funds (+$1.5 billion), and international & global debt funds (+$945 million), while being net redeemers of corporate high-yield funds (-$171 million). The municipal bond funds group posted a 0.57% gain on average during the week and witnessed its twelfth consecutive weekly net inflows, attracting $2.2 billion this week (its fourth largest weekly inflows on record). High Yield Municipal Debt Funds was the big attractor of investors’ assets for the week, taking in $677 million, followed closely by Short Municipal Debt Funds (+$571 million) and General & Insured Municipal Debt Funds (+$493 million).

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