February 4, 2021

U.S. Weekly FundFlows Insight Report: Despite Strong Equity Returns for the Week, Investors Were Net Redeemers of Both Equity ETFs and Mutual Funds

by Tom Roseen.

Investors were overall net redeemers of fund assets (including those of conventional funds and ETFs) for the first week in four. They withdrew $10.1 billion for Refinitiv Lipper’s fund-flows week ended February 3, 2021. However, fund investors padded the coffers of taxable bond funds (+$12.0 billion) and tax-exempt fixed income funds (+$1.6 billion), while being net redeemer of money market funds (-$12.7 billion) and equity funds (-$11.0 billion) this week.

Market Wrap-Up

The broad-based U.S. indices finished the fund-flows week in positive territory as investors set aside concern of the GameStop short squeeze volatility and focused back on better-than-expected Q4 earnings reports, vaccine distributions progress, and increasing probability of another round of fiscal stimulus.

On the domestic side of the equation, the NASDAQ Composite Price Only Index (+2.56%) posted the strongest one-week returns of the other broadly followed U.S. indices for the fund-flows week, followed by the Russell 2000 Price Only Index (+2.42%). Like it has been the last few weeks, the Dow Jones Industrial Average Price Only Index (+1.39%) once again was the group’s relative laggard. Overseas, the Xetra DAX Total Return Index (+1.64%) posted the strongest returns of the other often-followed broad-based global indices, while the Shanghai Composite Price Only Index (-1.40%) witnessed the largest decline.

On Thursday, January 28, 2021, the Dow posted its biggest jump in three weeks, winning back some of its losses from its largest one-day selloff since October the day before. Investors focused on Q4 earnings reports from the likes of Apple and Facebook and positive economic data. First-time jobless claims from the week prior fell to the lowest level in three weeks to a seasonally adjusted 847,000, while an economic report showed the U.S. economy grew by a 4% annual pace in Q4. In volatile trading exacerbated by the GameStop short squeeze and disappointing vaccine news on Friday, January 29, stocks took a beating and posted their largest one-month loss since October 2020. Despite reports of declines in new COVID-19 cases, investors questioned the efficiency of vaccine rollouts and their effectiveness against new virulent strains. The January consumer sentiment index declined from 79.2 in December to 79. Nonetheless, the 10-year Treasury yield rose 3.5 basis points on the day, closing at 1.09%.

Stocks got a shot in the arm on Monday, February 1, 2021, as investors appeared to see the January declines as buying opportunities. Investors kept a keen eye on increasing chances of President Joe Biden’s $1.9 trillion economic aid proposal while weighing the news of a slight decline to the Institute of Supply Management’s (ISM) manufacturing index. Oil also rallied on the day, closing up 2.6% to $53.55 per barrel. The Dow posted its largest one-day gain in three months on Tuesday, February 2, as investors focused on earnings, fiscal stimulus, and improving vaccine news. Better-than-expected sales news from Google and Amazon and a reported decline in COVID-19 related hospitalizations helped shore up returns in cyclically oriented issues, with financials getting a shot in the arm by the steepening yield curve. The 10-year yield rose to a little shy of 1.11%, while near month crude oil closed at its highest level in more than a year (+$54.76/bbl). On Wednesday, February 3, U.S. stocks booked their third consecutive day of plus-side performance after the private sector employment figures from ADP showed the U.S. economy added 174,000 new jobs in January and crude oil prices closed up 1.7% on the day at $55.69/bbl. A stronger-than-expected January ISM service reading helped prop up equities and may have contributed to the 10-year Treasury yield rising to almost 1.13% as investors became more risk seeking.

Exchange-Traded Equity Funds

As the result of increased U.S. market volatility, equity ETFs witnessed their first week of net outflows in eight—handing back $6.5 billion (their largest weekly net outflows since September 23, 2020) for the most recent fund-flows week. Authorized participants (APs) were net redeemers of domestic equity ETFs (-$9.5 million), withdrawing money, also for the first week in eight. However, nondomestic equity ETFs witnessed net inflows for the seventh consecutive week, taking in $3.0 billion this past week. iShares Silver Trust ETF (SLV, +$2.6 billion) and JPMorgan BetaBuilders Developed Asia ex-Japan ETF (BBAX, +$885 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, -$8.4 billion) experienced the largest individual net redemptions, and iShares Russell 2000 ETF (IWM, -$3.2 billion) suffered the second largest net redemptions of the week.

Exchange-Traded Fixed Income Funds

For the third week in four, taxable fixed income ETFs witnessed net inflows, attracting $4.3 billion this last week. APs were net purchasers of corporate high-yield ETFs (+$2.0 billion), corporate investment-grade debt ETFs (+$817 million), and government-Treasury ETFs (+$798 million). Loan Participation ETFs, a component of the corporate investment-grade ETFs macro-group, took in $63 million for the flows week, marking their thirteenth consecutive week of net inflows. iShares iBoxx $ High Yield Corporate Bond ETF (HYG, +$1.8 billion) and JPMorgan High Yield Research Enhanced ETF (JPHY, +$512 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, -$695 million) and SPDR Bloomberg Barclays High Yield Bond ETF (JNK, -$522 million) handed back the largest individual net redemptions for the week. For the fifteenth week in a row, municipal bond ETFs witnessed net inflows, taking in $378 million this week.

Conventional Equity Funds

Conventional fund (ex-ETF) investors were net redeemers of equity funds for the sixth consecutive week, withdrawing $4.5 billion this week, with the macro-group posting a 2.77% market gain for the fund-flows week. Domestic equity funds, suffering net redemptions of slightly more than $3.0 billion, witnessed their sixth weekly net outflows while witnessing a 2.98% gain on average for the fund-flows week. Nondomestic equity funds—experiencing a 2.31% weekly gain on average—experienced their first week of net outflows in three, handing back $1.5 billion this past week. On the domestic equity side, fund investors continued to shun large-cap funds (-$2.6 billion) and mid-cap funds (-$312 million). Investors on the nondomestic equity side were net redeemers of international equity funds (-$930 million) and global equity funds (-$548 million).

Conventional Fixed Income Funds

For the sixth week in a row, taxable bond funds (ex-ETFs) witnessed net inflows—taking in $7.7 billion this past week—while posting a 0.40% gain for the fund-flows week. Investors were net purchasers of corporate investment-grade debt funds (+$5.3 billion), flexible funds (+$1.4 billion), and international & global debt funds (+$895 million) while being net redeemers of corporate high-yield funds (-$689 million). The municipal bond funds group posted a 0.31% gain on average during the week and witnessed its thirteenth consecutive weekly net inflows, attracting $1.2 billion this week. High Yield Municipal Debt Funds was the big attractor of investors’ assets for the week, taking in $568 million, followed by General & Insured Municipal Debt Funds (+$327 million).

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