April 29, 2021

U.S. Weekly FundFlows Insight Report: Investors Target Yield-Oriented Funds—Equity Income ETFs Attract Weekly Inflow Record

by Jack Fischer.

During Refinitiv Lipper’s fund-flows week ended April 28, 2021, investors were overall net purchasers of fund assets (including both conventional funds and ETFs) for the twelfth week in 13.

Money market funds (+$55.9 billion), taxable bond funds (+$7.1 billion), and tax-exempt bond funds (+$1.6 billion) all attracted net inflows over the trailing five trading days. Equity funds (-$3.1 billion), on the other hand, saw net outflows for the first week in 12. Taxable bond funds have seen 19 straight weeks of net inflows with only three weeks of net outflows over the trailing year.

Market Wrap-Up

At the close of Refinitiv Lipper’s fund-flows week, the DJIA (-0.93%) recorded a weekly loss while the S&P 500 (+0.23%), NASDAQ (+0.72%), and the Russell 2000 (+2.88%) logged positive returns. The small-cap focused Russell 2000 also outperformed overseas indices Nikkei 225 (+1.22%), Dax 30 (+1.14%), and FTSE 100 (+0.82%). Regarding the Treasury yield curve, shorter-dated (two-, three-, and five-year) yields creeped up at a higher pace than their longer-dated counterparts on the week.

This Lipper fund-flows week kicked off on Earth Day—Thursday, April 22—with President Joe Biden hosting the Leaders Summit on Climate. Biden invited 40 world leaders to take part in a virtual conversation to increase efforts on stronger climate action. Reducing greenhouse gas (GHG) pollution and improving the accuracy and transparency of climate reporting frameworks have entered to the forefront of White House policy. President Biden, who announced the U.S. was rejoining the Paris Agreement on his first day in office, kicked off the festivities by announcing a 2030 goal of reducing GHG pollution by 50-52% from 2005 levels—adding to incentives that will drive flows toward sustainable, renewable investments and positive climate actors. This positive news, however, was overshadowed by a Bloomberg report that Biden will propose a significant increase in the capital gains tax rate (from 20.0% to 39.6%). DJIA (-0.94%) suffered its largest daily loss of the month, joining the S&P 500, NASDAQ, and Russell 2000 in the red for the day.

On Friday, the U.S. Department of Commerce released a report showing new home sales were up 20.7% from February and 66.8% year-over-year, bringing to light the significant jump in lumber prices since the start of the year. As of Friday, Refinitiv Proprietary Research reported that of the 123 companies in the S&P 500 that have reported earnings for Q1, 85.4% have come in above analyst expectations. The calendar week ended with U.S. equity markets reversing previous day’s losses.

Equity markets traded mostly positive on Monday, ahead of another crazy week of earnings season. The NASDAQ and S&P 500 finished the day at new records. Concerns arose in India as their government reported 353,000 new daily COVID-19 infections. As of April 27, India has hit more than 300,000 daily cases seven days in a row. Tuesday saw stocks trade mixed as investors awaited key remarks from both President Biden on his American Families Plan and the Federal Open Market Committee (FOMC) on future fiscal policy. Our fund-flows week ended Wednesday on familiar news from the FOMC meeting. The Federal Reserve will continue to hold the Federal Funds Rate at 0%-0.25%, as well as continue its asset purchasing program of $120 billion government bonds each month. Fed Chair Jerome Powell acknowledged the increase in asset prices but believes they are short-lived. After rising 4.88% on average each day this fund-flows week, the two-year Treasury yield fell nearly 8% to end the day after Powell’s remarks. Equity markets ended the session slightly down ahead of President Biden’s speech to Congress laying out his economic agenda.

Exchange-Traded Equity Funds

Drawing in $3.8 billion, exchange-traded equity funds recorded their twelfth straight week of net inflows. Exchange-traded equity funds have now recorded five straight weeks of positive performance on top of that.

Despite recording the highest U.S. Consumer Confidence Index since pre-pandemic, the top sub-group to attract flows was focused outside the U.S. market, with international equity ETFs bringing in $2.3 billion. International equity ETFs have now logged 19 straight weeks of net inflows and trail only growth/value large-cap ETFs in Lipper’s preliminary year-to-date net inflows ($54.2 billion). Finishing closely behind for the week, equity income ETFs registered net weekly inflows of $2.3 billion which set an all-time record for the sub-group. Equity income ETFs have posted only one weekly net outflow this year and surpassed their previous record by nearly $400 million (2018).

In terms of outflows, growth/value large-cap ETFs and growth/value small-cap ETFs suffered the largest sub-group weekly net outflows of $3.4 billion and $1.4 billion, respectively. This week was growth/value large-cap ETFs’ first week of net outflows in four, whereas growth/value small-cap ETFs have experiences three straight weeks of net outflows.

Over the past fund-flows week, there were two equity ETFs to attract more than $1.0 billion: Schwab U.S. Dividend Equity ETF (SCHD, +$1.1 billion) and iShares MSCI USA Value Factor ETF (VLUE, +$1.0 billion). Meanwhile, three equity ETFs experienced net outflows of more than $1.0 billion: SPDR S&P 500 ETF (SPY, -$4.7 billion), Invesco QQQ Trust 1 (QQQ, -$1.7 billion), and iShares: Russell 2000 ETF (IWM, -$1.6 billion).

Exchange-Traded Fixed Income Funds

Exchange-traded fixed income funds witnessed $2.8 billion in net inflows over the fund-flows week, marking their fifth consecutive week of net inflows. Corporate-investment grade ETFs continue to be the top sub-group attractor of weekly flows, taking in $2.7 billion. This marks the sub-group’s fifth consecutive week of inflows. Corporate high-yield ETFs ended the week as our second largest sub-group attractor of assets (+$1.2 billion). Yield-seeking investors certainly made a dent this week after pushing equity income ETFs to their all-time high and corporate high-yield ETFs to more than $1.0 billion in net inflows. Preliminary year-to-date numbers indicate corporate high-yield ETFs still have recorded the largest outflows for exchange-traded fixed income funds.

On the flip side, government-Treasury ETFs (-$1.6 billion) and government-Treasury & mortgage ETFs (-$625 million) recorded the top two outflows under this macro-group. Government-Treasury ETFs watched as they saw their largest outflow of the year and their first week of net outflows in six. This was the fourth week in a row in weekly net outflows for Government-Treasury & mortgage ETFs.

iShares: US Treasury Bond (GOVT, $763 million) and iShares: iBoxx $Investment Grade Corporates (LQB, $630 million) saw the largest weekly net inflows for fixed income ETFs. Meanwhile, iShares: 20+ Treasury Bond ETF (TLT, -$1.1 billion) and Schwab U.S. TIPS ETF (SCHP, -$932 million) realized the largest weekly outflows.

Conventional Equity Funds

Conventional equity funds (ex-ETF) were net redeemers for the fourth consecutive week, watching a whopping $6.9 billion flow out of funds despite five straight weeks of positive performance on average. Non-domestic equities (ex-ETF) realized net redemptions of $1.8 billion over the course of the past fund-flows week, marking their first week of net outflows in 12. Conventional domestic equity funds also saw net redemptions as well and posted their eighteenth straight week of net outflows (-$5.1 billion).

Growth/value-large cap conventional funds observed $4.1 billion in weekly net outflows, marking their forty-fourth straight week of negative flows. International equity conventional funds also posted outflows (-$2.5 billion). These two sub-groups are the bottom two in preliminary year-to-date flows as well. On the plus side, conventional global equity funds took in $730 million, which is their twelfth consecutive week of inflows and their fourth highest four-week moving average inflow total to date.

Conventional Fixed Income Funds

Conventional fixed income funds saw net inflows of $4.3 billion and posted a weekly return of 0.10% on average. Conventional fixed income funds have now reported 18 weeks of net inflows in the last 19. The macro-group was led by corporate-investment grade conventional funds (+$2.5 billion) making their fifty-fourth straight week of estimated net weekly inflows. Other sub-groups seeing inflows were conventional flexible funds ($879 million), conventional government- Treasury funds ($579 million), and conventional balanced funds ($532 million).

Only two conventional fixed income fund sub-groups suffered weekly net outflows: corporate-high yield (-$970 million) and corporate-high quality (-$28 million).

Conventional municipal bond funds returned negative 0.01% on average over the fund-flows week and took in $1.2 billion—their fourth week in a row of net inflows (all of which have been more than $1.0 billion). Conventional muni bond funds have only recorded two total weeks of net redemptions this year.

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