Investors were overall net purchasers of fund assets (including those of conventional funds and ETFs) for the fourth consecutive week. They injected $31.5 billion for Refinitiv Lipper’s fund-flows week ended March 3, 2021. Fund investors padded the coffers of money market funds (+$23.6 billion), taxable bond funds (+$8.2 billion), and equity funds (+$329 million), while being net redeemers of tax-exempt fixed income funds (-$605 million, their first weekly net outflows in 17 weeks) for the week.
Market Wrap-Up
The broad-based U.S. indices ended the fund-flows week down as investors remained concerned over the rapid rise in Treasury yields over the last several days, causing some to question lofty stock market values.
On the domestic side of the equation, the Dow Jones Industrial Average Price Only Index (-2.16%) did the best job of mitigating losses of the other broadly followed U.S. indices for the fund-flows week, followed by the S&P 500 Price Only Index (-2.69%). The NASDAQ Composite Price Only Index (-4.41%) witnessed the largest declines as investors continued to take some of those hard-won profits off the table from the high-flying tech issues and continued to rotate into cyclical stocks. Overseas, the Xetra DAX Total Return Index (+0.35%) posted the strongest returns of the other often-followed broad-based global indices, while the Nikkei 225 Price Only Index (-1.33%) suffered the largest declines.
On Thursday, February 25, 2021, the U.S. stock indices suffered their worst one-day percentage fall in three weeks as bond yields skyrocketed and investors sold equities on concerns of more costly borrowing conditions in the near feature and higher bond rates competing for investors’ attentions. The 10-year Treasury yield closed the day out at 1.54%, 16 basis points (bps) higher than the preceding day. The bond selloff was intensified by inflationary concerns brought on by the increasing likelihood of Congress passing President Joe Biden’s $1.9 trillion coronavirus aid package. Near-month crude oil prices jumped to a 13-month high. Despite the 10-year Treasury yield declining 10 bps on the day, on Friday, February 26, the U.S. market indices suffered another day of declines as investors grappled with the idea that the central bank might be forced to tighten monetary policy sooner than expected as the U.S. economy begins showing marked improvement. Consumer spending witnessed its largest increase since last June, rising 2.4%, while income rose by 10%. Near-month crude oil futures declined 2.1% to $61.50/barrel (bbl).
The S&P 500 booked its strongest one-day gain on Monday, March 1, 2021, since June after the Institute for Supply Management said its manufacturing index rose to 60.8 in February, matching a two-year high. Investors cheered news that the CDC unanimously voted to approve the use of Johnson & Johnson’s one-dose coronavirus vaccine and over the weekend the House passed the Biden administration’s $1.9 trillion relief bill, which now will be considered by the Senate. The 10-year Treasury yield declined to 1.44% and near-month crude oil futures declined to $60.64/bbl. However, the equity rally was short lived, with the Dow declining 144 points on Tuesday, March 2, as losses in tech shares led the market lower as the likelihood of another round of fresh government spending was expected to stoke inflation and higher bond yields as economic growth improves in the second half of 2021. Nonetheless, the 10-year Treasury yield declined to 1.42% on the day and oil futures edged lower. On Wednesday, March 3, stocks tumbled once again as the ten-year Treasury yield got another shot in the arm, rising to 1.47%, pressuring technology stocks and dividend payers, such as utilities. Investors may have been a little disappointed as well after private payroll data provider ADP showed the private sector added just 117,000 jobs in February, missing analyst forecasts of 225,000.
Exchange-Traded Equity Funds
Equity ETFs witnessed their fourth consecutive week of net inflows—attracting $2.4 billion for the most recent fund-flows week. Authorized participants (APs) were net redeemers of domestic equity ETFs (-$729 million), withdrawing money, for the first week in four. Nondomestic equity ETFs witnessed net inflows for the eleventh week running, attracting $3.2 billion this past week. iShares Core MSCI Emerging Markets ETF (IEMG, +$1.4 billion) and iShares Russell 2000 ETF (IWM, +$713 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, -$3.5 billion) experienced the largest individual net redemptions, and Invesco QQQ Trust 1 ETF (QQQ, -$1.6 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 inflows, taking in $3.2 billion this last week. APs were net purchasers of corporate high-yield ETFs (+$1.9 billion) and government-Treasury ETFs (+$1.1 billion) while being net redeemers of flexible ETFs (-$523 billion) and international & global debt ETFs (-$294 million). SPDR Bloomberg Barclays High Yield ETF (JNK, +$1.2 billion) and iShares 20+ Year Treasury Bond ETF (TLT, +$724 million) attracted the largest amounts of net new money of all individual taxable fixed income ETFs. Meanwhile, iShares TIPS Bond ETF (TIP, -$829 million) and iShares Core US Aggregate Bond ETF (AGG, -$675 million) handed back the largest individual net redemptions for the week. For the eighteenth week in 19, municipal bond ETFs witnessed net inflows, taking in $181 million.
Conventional Equity Funds
Conventional fund (ex-ETF) investors were net sellers of equity funds for the first week in three, withdrawing $2.1 billion this week, with the macro-group posting a 2.79% market loss for the fund-flows week. Domestic equity funds, suffering net redemptions of slightly more than $2.5 billion, witnessed their tenth weekly net outflows while witnessing a 3.07% loss on average for the fund-flows week. Nondomestic equity funds—posting a 2.16% weekly loss on average—witnessed their fourth consecutive week of net inflows but taking in just $419 million this past week. On the domestic equity side, fund investors shunned large-cap funds (-$3.0 billion) and small-cap funds (-$272 million) but directed money toward equity income funds (+$114 million). Investors on the nondomestic equity side were net purchasers of international equity funds (+$94 million) and global equity funds (+$325 million).
Conventional Fixed Income Funds
For the eleventh week in a row, taxable bond funds (ex-ETFs) witnessed net inflows—taking in $5.0 billion this past week—while suffering a 0.59% decline for the fund-flows week. Investors were net purchasers of corporate investment-grade debt funds (+$4.4 billion), flexible funds (+$1.3 billion), and international & global debt funds (+$403 million) while being net redeemers of corporate high-yield funds (-$1.3 billion) and government-mortgage funds (-$280 million). The municipal bond funds group posted a 0.08% loss on average during the week and witnessed its first week of net redemptions 17 consecutive weekly net inflows, handing back $786 million this week. High Yield Municipal Debt Funds (-$647 million) experienced the largest outflows of the group.
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