May 28, 2021

Top Three Refinitiv Lipper Classifications for Weekly Inflows and How They Fared During 2013 Taper Tantrum

by Jack Fischer.

This week we are going to touch on the top three Lipper exchange traded fund classifications that attracted inflows over the past Refinitiv Lipper’s fund-flows week ending May 26, 2021 (for more weekly trends check out U.S. Weekly FundFlows Insight Report)

Lipper Multi-Cap Value ETFs (+$1.93 billion), Lipper Large-Cap Core ETFs (+$1.88 billion), and Lipper European Region ETFs (+$1.56 billion) ranked in the top three for weekly net inflows. Each of these Lipper ETF classifications have seen consistent inflows all month ranking first, fifth, and second, respectively, in terms of preliminary monthly inflows. Lipper Multi-Cap Value ETFs is also the top equity ETF classification in year-to-date inflows as well.

Domestic mutual funds have seen a massive exodus of capital, witnessing 14 straight weeks of outflows and posting a four-week moving average of outflows greater than $1.0 billion for the past 56 weeks. A large portion has moved into domestic ETFs which set a record for inflows in the first quarter of 2021 (+$151.5 billion). Non-domestic mutual funds were not hit as hard in 2021, however, in 2020 conventional non-domestic funds only recorded eight positive weeks of inflows. Like their domestic counterpart, non-domestic ETFs saw a record inflow in the first quarter (+$52.2 billion).

Lipper Multi-Cap Value ETFs, Lipper Large-Cap Core ETFs, and Lipper European Region ETFs have certainly benefited from the move from mutual funds to ETFs. Lipper Multi-Cap Value ETFs returned 1.18% last week on average while their $1.93 billion of new money ranks fourth all time in weekly inflows for the classification. Lipper Large-Cap Core ETFs weekly inflows (+$1.88 billion) ranked tenth in their history as the classification funds returned 1.85% on average. Lastly, Lipper European Region ETFs logged a 2.03% return on average over the past Lipper fund-flows week while ingesting their fourth largest weekly inflow all time (+$1.56 billion).

Weekly Flows for Lipper Classification

While the increased liquidity, tax efficiency, transparency, and lower fees have all been tailwinds for flows into ETFs, positive performance of the broad-based indices certainly helps as well.

ENFs and Index Returns

Another driver of flows into Lipper European Region ETFs could be attributed to investors looking to diversify away from the relatively pricey U.S. market and the possibility of interest rates jumping. When interest rates and the cost of borrowing increases, companies’ valuations (especially those that are stretched) take a hit. The Federal Reserve hinted at future policy that could wind up increasing rates in the release of its April meeting minutes last Wednesday.

“A number of participants suggested that if the economy continued to make rapid progress toward the Committee’s goals, it might be appropriate at some point in upcoming meetings to begin discussing a plan for adjusting the pace of asset purchases.”

This tiny inclination of a possible tightening of the monetary policy sent Treasury yields on a two-day roller-coaster ride. Flash back to the 2013 Taper Tantrum, where a similar announcement of a possible future reduction of asset purchases sent panic throughout the fixed income market as bond prices fell, shooting up Treasury yields. Ironically, it was almost exactly eight years ago (May 22, 2013) when then Fed Chair Ben Bernanke revealed the Federal Open Market Committee’s intentions to taper the pace of their purchases. It’s important to note that no concrete action was done by the Fed until the end of the year, however, the comments alone sent bond prices into a downward spiral and yields higher.

When comparing current weekly flows for these three Lipper Classifications to weekly flows from 2013, Lipper European Region ETFs saw a drastic uptick in weekly net inflows post Bernanke’s tapering message—both Lipper Multi-Cap Value ETFs and Lipper Large-Cap Core ETFs saw muted weekly figures. Looking at the six-month period to end 2013 (after the initial May FOMC warning), Lipper European Region ETFs attracted $13.1 billion, while Lipper Multi-Cap Value ETFs (+$999 million) and Lipper Large-Cap Core ETFs (-$884 million) were nowhere close.

2021 vs 2013 Euro Flows

This is not to say flows will persist into non-domestic ETFs or specifically into Lipper European Region ETFs. It is merely an observation on where market participants fled to on the anticipation of the Fed slowing asset purchases and the possibility of higher rates.

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