February 18, 2021

U.S. Weekly FundFlows Insight Report: Both Equity ETFs, Funds Attract Net New Money Despite Mixed Returns

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 $34.6 billion for Refinitiv Lipper’s fund-flows week ended February 17, 2021. Fund investors padded the coffers of money market funds (+$17.3 billion), equity funds (+$9.6 billion), taxable bond funds (+$5.7 billion), and tax-exempt fixed income funds (+$2.0 billion) for the week.

Market Wrap-Up

The broad-based U.S. indices ended the fund-flows week mixed as investors focused on a decline in COVID-19 cases, progress toward another large COVID-19 related fiscal aid package, and a steepening Treasury yield curve.

On the domestic side of the equation, the Dow Jones Industrial Average Price Only Index (+0.56%) posted the strongest one-week returns of the other broadly followed U.S. indices for the fund-flows week—closing at record highs—followed by the S&P 500 Price Only Index (+0.55%). Breaking a strong run of record closes over the last few weeks, the Russell 2000 Price Only Index (-1.15%) witnessed the largest declines for the fund-flows week. Overseas, the FTSE 100 Price Only Index (+2.93%) posted the strongest returns of the other often-followed broad-based global indices, while the Xetra DAX Total Return Index (-0.98%) was the laggard.

On Thursday, February 11, 2021, the NASDAQ and S&P 500—despite the Department of Labor showing little improvement in new jobless claims for the prior week—notched new record highs on the day as expectations increased that Congress would pass the $1.9 trillion fiscal stimulus package proposed by President Joe Biden. Equity prices were also bolstered by news of declines in COVID-19 cases and improving rollout of vaccinations. Shrugging off a decline in the University of Michigan’s consumer sentiment index (its lowest reading in six months), investors pushed U.S. stock indices to another fresh round of records on Friday, February 12, led by advances in both energy and financial issues. Stocks inched higher on the day as better-than-expected Q4 earnings continued to impress and near-month crude oil futures rose 2.1% to $57.47 per barrel (bbl). The 10-year Treasury yield closed the day up three basis points (bps) at 1.199%.

The U.S. markets were closed on Monday, February 15, 2021, in observation of Presidents’ Day. The Dow posted another record high on Tuesday, February 16, as frigid weather lifted energy stocks and a rise in yield was a tailwind for banking stocks. Energy stocks rose on the day as natural gas prices soared as a cold snap left millions of Texans without electricity or heat. Near-month crude oil prices rose above $60/bbl. The bond market came under pressure as the 10-year Treasury yield rose to a one-year high of 1.30% as investors continued to assess the impact of an additional $1.9 trillion of debt will have on the economy and lending. On Wednesday, February 17, while the Dow booked another closing high, after the Federal Reserve’s January meeting minutes showed officials were unlikely to remove monetary stimulus in the near future and U.S. January retail sales rose 5.3%—beating estimates of a 1% decline—the other broad-based indices witnessed small declines. Oil closed the day up 1.9% at $61.14/bbl, the 10-year Treasury yield declined two bps to 1.296%, and near-month gold futures closed down 1.5% at $1,772.80.

Exchange-Traded Equity Funds

Equity ETFs witnessed their second consecutive week of net inflows—attracting $9.2 billion for the most recent fund-flows week. Authorized participants (APs) were net purchasers of domestic equity ETFs (+$8.7 billion), injecting money, also for the second week in a row. Nondomestic equity ETFs witnessed net inflows for the ninth week running, although only attracting $487 million this past week. SPDR S&P 500 ETF (SPY, +$3.3 billion) and ARK Fintech Innovation ETF (ARKF, +$749 million) attracted the largest amounts of net new money of all individual equity ETFs. At the other end of the spectrum, SPDR Gold ETF (GLD, -$785 million) experienced the largest individual net redemptions, and iShares Russell 2000 ETF (IWM, -$482 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 outflows, handing back $1.8 billion this last week. APs were net purchasers of government-mortgage ETFs (+$396 million) and government-Treasury ETFs (+$328 million) while being net redeemers of corporate high-yield ETFs (-$1.2 billion), corporate investment-grade debt ETFs (-$620), and international & global debt ETFs (-$593 million). Loan Participation ETFs, a component of the corporate investment-grade ETFs macro-group, took in $233 million for the flows week, marking their fifteenth consecutive week of net inflows. iShares 7-10 Year Treasury Bond ETF (IEF, +$900 million) and Schwab U.S. TIPS ETF (SCHP, +$374 million) attracted the largest amounts of net new money of all individual taxable fixed income ETFs. Meanwhile, iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD, -$1.9 billion) and iShares iBoxx $ High Yield Corporate Bond ETF (HYG, -$1.3 billion) handed back the largest individual net redemptions for the week. For the seventeenth week in a row, municipal bond ETFs witnessed net inflows, taking in $353 million this week.

Conventional Equity Funds

Conventional fund (ex-ETF) investors were net purchasers of equity funds for the first week in eight, but injecting just $381 million this week, with the macro-group posting a 0.65% market gain for the fund-flows week. Domestic equity funds, suffering net redemptions of slightly less than $920 million, witnessed their eighth weekly net outflows while witnessing a 0.47% gain on average for the fund-flows week. Nondomestic equity funds—posting a 1.06% weekly gain on average—witnessed their second consecutive week of net inflows, taking in $1.3 billion this past week. On the domestic equity side, fund investors continued to shun large-cap funds (-$2.0 billion) but directed money toward small-cap funds (+$587 billion). Investors on the nondomestic equity side were net purchasers of international equity funds (+$920 million) and global equity funds (+$381 million).

Conventional Fixed Income Funds

For the ninth week in a row, taxable bond funds (ex-ETFs) witnessed net inflows—taking in $7.6 billion this past week—while suffering a 0.18% decline for the fund-flows week. Investors were net purchasers of corporate investment-grade debt funds (+$5.2 billion), flexible funds (+$1.3 billion), and international & global debt funds (+$737 million) while being net redeemers of balanced funds (-$116 million) and corporate high-yield funds (-$105 million). The municipal bond funds group posted a 0.16% loss on average during the week and witnessed its fifteenth consecutive weekly net inflows, attracting $1.6 billion this week. General & Insured Municipal Debt Funds was the big attractor of investors’ assets for the week, taking in $494 million, followed by High Yield Municipal Debt Funds (+$491 million).

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