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June 11, 2021

For May, Inflation-Focused and Value Plays Attract the Largest Flows for ETFs and Conventional Funds

by Tom Roseen.

For the month of May, investors injected some $167.5 billion into the mutual fund business (including conventional funds and ETFs) based on preliminary numbers. However, investors remained on the fence, injecting almost half of that sum into Money Market Funds (+$84.81 billion).

Of the long-term assets, all three asset classes attracted net new money in May, with equity funds attracting $41.1 billion, taxable bond funds taking in $34.6 billion, and municipal bond funds receiving $6.9 billion.

During the month the broad-based U.S. indices hit new record highs, but remained range bound as investors wrestled with the dichotomy between strong Q1 corporate earnings results, a flattening of the Treasury yield curve, and broad reopening of the U.S economy against growing inflationary concerns, labor shortages, and lower than expected April nonfarm payrolls report. The report showed the U.S. economy added just 266,000 jobs in April compared to analysts’ expectation of 755,000. Commodity prices rose for the month, with near-month gold prices gaining 7.65% to close the month at $1,902.50 per ounce and front-month crude oil prices climbing 4.31% to close at $66.32 per barrel.

For the month, out-of-favor issues continued to rally while the stay-at-home and growth stocks were pressured, with the NASDAQ Composite (-1.53%) suffering the only major decline and the NYSE AMEX (+9.49%) composite posting the strongest return, followed by the Dow Jones Industrial Average (+1.93%, which witnessed its twenty-fourth record close for 2021 during the month). Overseas, the Shanghai Composite (+6.72%), the Xetra DAX (+3.48%), and the FTSE 100 (+3.44%) all posted handsome returns for May.

On the equity side, international equity funds (including ETFs) attracted the largest amount of net new money, taking in $19.0 billion, followed by sector-other funds (+$9.6 billion, which is heavy influenced by commodities funds), equity income funds (+$6.0 billion), and sector-financial/banking funds (+$5.9 billion).

Focusing on the individual Lipper equity classifications, Multi-Cap Value Funds (including ETFs) took in the largest sum for the month, attracting $9.2 billion as investors looked to the go-anywhere value-oriented funds, followed by International Multi-Cap Core Funds (+$6.7 billion), European Region Funds (+$6.5 billion), and Emerging Markets Funds (+$5.6 billion).

On the taxable bond fund side, despite inflationary concerns but benefitting from recent declines at the long-end of the yield curve, investors continued their search for yield, embracing corporate investment-grade debt funds (+$17.8 billion), flexible portfolio funds (+$9.5 billion), and government-Treasury funds (+$9.1 billion), while shunning corporate high-yield funds (-$5.2 billion).

The primary attractors of investor assets in May on the taxable bond fund side from a Lipper classification perspective were Core Bond Funds (+$10.1 billion), Inflation Protected Bond Funds (+$7.2 billion), Multi-Sector Income Funds (+$5.7 billion), and Loan Participation Funds (+$4.4 billion).

Excluding flows into money market funds, exchange-traded funds (+$66.2 billion) outdrew conventional funds (+$16.5 billion) four to one, with conventional equity funds handing back some $11.1 billion for May, while their equity ETF counterparts attracted $52.2 billion of net new money. Investors appeared to favor actively managed conventional taxable fixed income funds (+$21.7 billion) and municipal bond funds (+$6.0 billion) over their ETF cousins (+$13.0 billion and +$1.0 billion, respectively).

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