by Jack Fischer.
Investors were overall net purchasers of fund assets (including both conventional funds and ETFs) for the eighth consecutive week as they injected $62.1 billion into the market during Refinitiv Lipper’s fund-flows week ended March 31, 2021.
Money market (+$54.6 billion), taxable bond (+$4.7 billion), equity (+$2.6 billion), and tax-exempt bond (+$161 million) funds all attracted net inflows over the trailing five trading days. The four-week moving average for money market inflows reached its highest level since May 2020.
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 small-cap focused Russell 2000 was the largest gainer, posting a 4.04% weekly return. Treasury yields across the yield curve rose over the course of the week, highlighted by the 10-year Treasury yield touching a 14-month high (although still low by historical standards).
On Thursday, March 25, U.S. broad-based indices ended a three-day losing streak as market participants digested good news from the White House and positive employment data. President Joe Biden upped his original goal of 100 million Americans vaccinated by his one-hundredth day in office to 200 million. Initial jobless claims were reported under 700,000 for the first time in the past year and new claims for unemployment decreased to its lowest total since the start of the pandemic.
We also heard from Federal Reserve Chair Jerome Powell who reminded us once again the Fed is utterly devoted to its target of 2% average inflation and that any tightening of monetary policy will be done “gradually over time, and with great transparency.” Broad-based indices continued their positive performance on Friday, March 26, even as U.S. consumer spending data showed a decrease of 1% in February (the largest decline over last 10 months). Many believe the drop to be temporary as better weather, increased reopenings, and stimulus checks will help to provide a nice spring bounce in this month’s March report.
On Monday, March 29, the DJIA, S&P 500, and NASDAQ all finished roughly flat, whereas the Russell 2000 took a 2.8% drop. News surfaced Monday surrounding Credit Suisse and Nomura (two global investment banks) suffering potentially “significant” first-quarter blows after a U.S. hedge fund, Archegos Capital Management, defaulted on margin calls over the previous week. This forced an early liquidation of more than $20 billion in its holdings. The two investment banks, who were the primary suppliers of leverage to the hedge fund, will take on an estimated $4-6 billion in losses. On a positive note, the Ever Given—the 1,300-foot container ship blocking the Suez Canal—was finally set free. The massive vessel was holding up an estimated $9.6 billion in global goods each day. On Tuesday, the Russell 2000 erased a portion of the previous day’s losses despite the rest of the U.S. equity markets falling. Refinitiv Lipper’s fund-flows week ended Wednesday on news of President Biden’s $2 trillion infrastructure plan. To fund the significant expenditure, Biden is planning on raising the corporate tax rate from 21% to 28%. Equity indices ended the day mixed and the 10-year Treasury yield increased by 1.23% (closing at 1.75%).
As Q1 ended yesterday, we continued to see fund-flow themes from growth and technology into reopening stocks and financials. Trends also persisted in the positioning of capital to money market funds, international equities, and shorter-term fixed income funds. Happy Opening Day to the baseball fans out there!
Exchange-Traded Equity Funds
Exchange-traded equity funds realized their eighth straight week of net inflows (+$2.5 billion) and their twenty-third week of positive inflows in the last 25. The rotation trade into financial and energy stocks is certainly prevalent under this subgroup. Sector-financial ETFs led here, seeing inflows of $1.7 billion and sector-energy ETFs saw $899 million in net inflows. Sector-energy ETFs witnessed their twenty-seventh week in a row of positive inflows. International equity ETFs accounted for the second largest net inflow in this subgroup (+$1.6 billion) and have not recorded a negative weekly flow all year.
After leading the subgroup in net inflows last week, large-cap ETFs were the largest detractor of equity ETF flows, losing $1.9 billion. Despite positive weekly performance (+2.36% on average), large-cap ETFs saw net redemptions for the first time in four weeks.
The top two ETFs for net inflows were iShares: MSCI Emerging Markets (EEM, +$1.7 billion) and Financial Select SPDR (XLF, +$946 million). The newly launched ARK Space Exploration & Innovation (ARKX) took in a noteworthy $344 million, landing tenth on our list of top ETF equity inflows for the week. On the flip side, Invesco QQQ Trust 1 (QQQ, -$3.8 billion) and SPDR S&P 500 ETF (SPY, -$1.7 billion) realized the largest net outflows for the week. Both funds found themselves on our top inflows list last week.
Exchange-Traded Fixed Income Funds
Taxable fixed income ETFs attracted $5.2 billion in net inflows, marking its largest total inflow since October 2020 and the twentieth largest weekly inflow of all time. Government-Treasury ETFs (+$1.8 billion), corporate-investment grade ETFs (+$1.4 billion), and corporate-high yield ETFs (+$1.3 billion) all recorded positive net inflows. Government-Treasury ETFs have gone back-to-back weeks recording the top net inflow in the subgroup as investors seek the stability of principal protection.
For the twenty-second time in the last 23 weeks, tax-exempt municipal bond ETFs witnessed weekly net inflows (+$218 million).
The two fixed income ETFs that recorded inflows over $1 billion are also focused on short-term U.S. investment grade corporate debt and intermediate-term U.S. Treasury bonds. iShares: 1-5 Year Investment Grade Corporate Bond (IGSB) and iShares: 7-10 Year Treasury Bond ETF (IEF) attracted $1.2 billion and $1.1 billion, respectively. Investors appear to be avoiding the long end of the curve as iShares: 20+ Year Treasury Bond ETF (TLT) was the laggard of the subgroup, suffering $826 million in net outflows.
Conventional Equity Funds
Conventional equity funds (ex-ETF) were net purchasers for the third week in four, taking in $147 million. Non-domestic equities (ex-ETF) drew in $1.3 billion over the course of the past fund-flows week and reached their largest four-week moving average since March 2018. Conventional domestic equity funds posted their fourteenth straight week of net outflows (-$1.1 billion) even though domestic equity funds experienced a 2.30% weekly gain on average.
Conventional Fixed Income Funds
Conventional fixed income funds (ex-ETF) observed net outflows for the first time in 15 weeks, redeeming $442 million. Investors withdrew $520 million from conventional corporate-high yield funds even though they had back-to-back weeks of positive weekly performance, marking the tenth week in a row of outflows. Government-mortgage (-$282 million) and government-Treasury (-$226 million) funds both suffered net weekly outflows in this subgroup as well.
On the plus side of conventional fixed income funds, international & global debt (+$310 million) and corporate-investment grade (+$257 million) logged positive net weekly flows. International & global debt funds have seen a positive weekly flow in 25 of the last 26 weeks. Meanwhile corporate-investment grade funds (ex-ETF) now have 50 straight weeks of positive weekly inflows.
For the first week in four, conventional municipal bond funds observed net outflows (-$56 million).
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