April 15, 2021

U.S. Weekly FundFlows Insight Report: Capital Flows from Sidelines to Playing Field as U.S. Enters Earnings Season

by Jack Fischer.

Investors were overall net redeemers of fund assets (including both conventional funds and ETFs) for the first week in the last 10 as they withdrew $14.0 billion out of the market during Refinitiv Lipper’s U.S. fund-flows week ended April 14, 2021.

Money market funds (-$27.8 billion) were the sole driver of redemptions. Taxable bond (+$9.1 billion), tax-exempt bond (+2.3 billion), and equity (+$760 million) funds all attracted net inflows over the trailing five trading days. The past fund-flows week marks the first time in nearly six months where we have seen back-to-back weeks of outflows from money market funds. The total net outflows of $27.8 billion is the macro-group’s largest outflow since December 2020.

Market Wrap-Up

Refinitiv Lipper’s fund-flows week ended with weekly gains among all U.S. broad-based indices as well as the Dax 30 and FTSE 100. The technology, growth-oriented NASDAQ was the largest gainer, posting a 1.23% weekly return. The small-cap focused Russell 2000 finished the week right behind, appreciating 1.11%. The Treasury yield curve flattened slightly over the course of the week as longer-dated yields (seven-, 10-, 30-year) all fell, while the two-, three-, and five-year yields rose.

On Thursday, April 8, Federal Reserve Chair Jerome Powell stated in a speech to the International Monetary Fund (IMF) that even though U.S. economic recovery is strong, the U.S. is far from meeting the Fed’s full employment mandate. “The unemployment rate in the bottom quartile is still 20%,” Powell said. He reiterated the Fed’s easy monetary policy and support of the market in order to “avoid a great deal of scarring.” The reaction from the U.S. equity markets was positive on Thursday, led by the NASDAQ (+1.03%). The 10-year Treasury yield cooled off, falling 1.33% on the day. The calendar week ended on Friday, with the Dow and S&P 500 once again setting all-time highs. The S&P 500 recorded its nineteenth day posting a record high in 2021, and its fifth time in the last six sessions. The market appears to have accepted the Fed’s stance that any price jump is temporary—equity markets surged even as the Producer Price Index (PPI) rose 1%, which was more than expected.

On Monday, April 12, markets traded flat as investors regrouped before the upcoming earnings season. All forecasts are predicting large earnings growth. Refinitiv Proprietary Research forecasts 25% year-over-year Q1 earnings growth as well as 8.8% year-over-year Q1 revenue growth for S&P 500 companies. The IMF also upgraded its global GDP growth rate expectations to the highest level in decades. The accommodative monetary policy paired with positive earnings growth expectations might lead to a slight reversal in the flows trend from growth to value. NASDAQ was the big winner Tuesday, April 13, gaining 1.05% on the day. Overall equity markets seemed unphased despite the Consumer Price Index (CPI) jumping 2.6% year-over-year, according to the Department of Labor. Although 2.6% is a staggering number, it’s important to note the base effect—a year ago the global economy entered lockdown and prices became suppressed across the board. Refinitiv Lipper’s fund-flows week ended Wednesday, April 14, as the new earnings season began. JPMorgan Chase, Goldman Sachs, and Wells Fargo all beat analyst expectations, driving the DJIA’s outperformance over the S&P 500 and NASDAQ for the day.

The past Lipper fund-flows week had no shortage of macroeconomic events. The U.S. Treasury reported the budget deficit continues to widen, hitting $660 billion last month. President Joe Biden hosted a meeting to discuss the downstream affects and possible solutions for the semiconductor shortages while he also considers amending his corporate tax rate increase (he originally proposed an increase from 21% to 28%). On the COVID front, health officials are taking a closer look at the Johnson & Johnson vaccine, as extremely rare instances of blood clots appear to be manifesting within two weeks of injection. Despite all the negative news, investors maintained their positive market sentiment—Bank of America’s most recent fund manager survey reported that only 7% of managers see the current equity market as a bubble (in contrast to the 74% who have indicated the current crypto market is a bubble).

Exchange-Traded Equity Funds

Exchange-traded equity funds recorded their tenth straight week of net inflows (+$3.2 billion). Equity ETFs have only recorded one week of net outflows this year. The fall of longer-dated yields along with consensus Q2 economic growth has presented a reversal of a recent flow trend into financial/banking and out of technology, albeit possibly temporarily. Sector-technology ETFs saw $1.1 billion in total net inflows—the second highest among the sub-group—while sector-financial/banking ETFs witnessed $209 million in outflows—the second lowest in net flows.

Taking the top spot in exchange-traded equity funds was international equity ETFs, attracting $2.1 billion and recording their seventeenth straight week of positive net inflows. Growth/value-small cap ETFs were the largest detractor of the sub-group. Investors pulled out $2.2 billion despite three consecutive weeks of positive performance. Growth/value-small cap ETFs have now reported a negative $1.1 billion as their four-week moving average, marking their third largest total all time.

The top three equity ETFs to attract capital over the course of Refintiv Lipper’s fund-flows week were iShares Core MSCI EAFE (IEFA, +$826 million), SPDR S&P 500 ETF (SPY, +$555 million), and Ark Innovation (ARKK, +$412 million). Investors gambling that ARKK was going to purchase Coinbase on its Wednesday IPO were right, as Cathy Wood’s daily transaction email reported purchases into ARKK, ARKF, and ARKW.

Flip side of the coin, the top three equity ETFs to see withdrawals were iShares Russell 2000 ETF (IWM, -$961 million), Invesco QQQ Trust 1 (QQQ, -$807 million), and ProShares Ultra Pro QQQ (TQQQ, -$563 million).

Exchange-Traded Fixed Income Funds

Exchange-traded fixed income funds drew in $3.2 billion in net inflows over the fund-flows week, thus registering a 2021 high for their four-week moving average (+$3.0 billion). Echoing the year-to-date trend, corporate-investment grade ETFs was the top attractor of flows for the week, showcasing their ninth largest weekly net inflows of all time (+$3.2 billion). Corporate-high yield ETFs witnessed the largest net outflows for the sub-group (-$761 million). Year-to-date, the two groups have recorded estimated net flows of $24.4 billion and negative $1.3 billion, respectively.

The top three positive net inflows for fixed income ETFs went into iShares iBoxx Investment Grade Corporates (LQD, +$942 million), iShares Core U.S. Aggregate Bond (AGG, +$585 million), and Schwab U.S. TIPS ETF (SCHP, +$359 million). Our top three weekly net outflows were attributed to SPDR Bloomberg Barclays High Yield Bond (JNK, -$717 million), iShares 20+ Treasury Bond ETF (TLT, -$303 million), and iShares iBoxx High Yield Corporates (HYG, -$217 million).

Conventional Equity Funds

Conventional equity funds (ex-ETF) were net redeemers for the third week in four, watching $2.5 billion flow out of funds despite three weeks of positive performance on average. Non-domestic equities (ex-ETF) gained $129 million over the course of the past fund-flows week, marking their tenth straight week of inflows. Conventional domestic equity funds posted their sixteenth straight week of net outflows (-$2.6 billion).

Growth/value-large cap conventional funds observed $2.1 billion in weekly net outflows, making their forty-second straight week of negative flows. On the plus side, conventional global equity funds took in $1.1 billion, which is their largest inflow total since June 2018 (thirteenth largest of all time).

Conventional Fixed Income Funds

Coming off their fifteenth largest weekly inflows of all time, conventional fixed income funds brought in $5.9 billion after posting a weekly return of 0.29% on average. The sub-group was led by corporate-investment grade conventional funds (+$3.3 billion) logging their fifty-second straight week of estimated net weekly inflows, adding on to their second largest quarterly net inflows total in Q1 2021. Conventional balanced funds were the sub-group’s second largest inflows total. Their $1.3 billion in net inflows marked the ninth largest all time and brought the four-week moving average to their second highest mark to date.

Government-mortgage and flexible conventional funds were the laggards of the conventional fixed income sub-group, witnessing $174 million and $69 million in outflows, respectively.

Conventional municipal bond funds returned 0.45% on average over the fund-flows week and brought in $1.8 billion (their fifteenth highest net inflow to date). Conventional muni bond funds have only recorded two total weeks of net outflows for 2021.

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