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June 3, 2021

U.S. Weekly FundFlows Insight Report: Domestic Equity Funds Suffer as New Money Continues to Flood Non-Domestic ETFs

by Jack Fischer.

During Refinitiv Lipper’s fund-flows week ended June 2, 2021, investors were overall net purchasers of fund assets (including both conventional funds and ETFs) for the fourth consecutive week (+$5.7 billion). Money market funds (+$6.5 billion), taxable bond funds (+$2.8 billion), and tax-exempt bond funds (+$997 million) all attracted net inflows while equity funds were hit with $4.6 billion in weekly outflows over the trailing four trading sessions. Domestic equity funds saw $5.7 billion walk out the door as non-domestic equity funds took in $1.1 billion.

Market Wrap-Up

At the close of Refinitiv Lipper’s fund-flows week, both U.S. and overseas broad-based indices logged positive weekly returns. Domestic indices Russell 2000 (+2.16%), DJIA (+0.81%), S&P 500 (+0.29%), and NASDAQ (+0.13%) ended in the black. Overseas, FTSE 100 (+1.45%), DAX 30 (+0.89%), and Shanghai Composite (+0.22%) each realized their fourth consecutive week of positive performance. Year to date, the small-cap-centric Russell 2000 (+16.35%) has outperformed all other broad-based indices. The 10-two Treasury yield spread (+1.19%) and the VIX (+4.36%) rose slightly over the course of the week.

There was certainly no shortage of economic data during the shortened week. On Thursday, May 27, initial jobless claims released by the Department of Labor indicated another decrease to a pandemic-era record low (406,000 vs. 425,000 expected). Continuing claims for the prior week also came in lower than expectations (3.642 million vs. 3.680 million). The Commerce Department kept the first-quarter gross domestic product growth unchanged at 6.4%. The Russell 2000 was the big winner on the day, gaining 1.06%, while the 10-year Treasury yield rose 2.29%.

Friday, May 28, was highlighted by President Joe Biden’s release of his 2022 budget proposal. The two main components of Biden’s proposal are the American Families Plan and the American Jobs Plan. The American Families Plan calls for $1.8 trillion geared toward “human infrastructure” such as affordable childcare, pre-kindergarten assistance, and improved paid leave programs. The American Jobs Plan asks for an estimated $2.3 trillion and centers around physical infrastructure such as bridges, roads, electric vehicle charging stations, and improving internet capabilities. Altogether, the full proposal calls for around $6.0 trillion and would mark the largest amount of federal spending since World War II. Friday also included the release of April’s Personal Income and Outlays Report. The report showed U.S. personal income in April decreased 13.1% from previous month, which comes after March’s 20.9% increase. The drastic differences month over month could be attributed to the most recent round of stimulus checks and continued social benefits. Even with personal income down from March, April still revealed an increase in the Personal Consumption Expenditures (PCE) index (a popular inflation indicator for the Federal Reserve). PCE increased 0.6% from March and 3.6% (+3.1% excluding food and energy) from last April. The month-over-month increase was the largest percentage increase since June 2008. Equity markets traded mixed while Treasury yields fell—led by a 2.61% drop in the three-year yield.

Markets were closed on Monday, May 31, in observation of Memorial Day. We wrapped up the first day of June with the Russell 2000 once again leading the broad-based indices, gaining 1.14% on the day. Treasury yields jumped by more than 1% across the board, and the 10-two Treasury yield spread rose by 1.38%. Tuesday also released the Institute for Supply Management (ISM) Report on Business. The ISM report indicated the Manufacturing PMI Index (+0.5%) and the New Orders Index (+2.7%) both increased for the twelfth consecutive month. Backlog Orders (+2.4%), New Export Orders (+0.5%), and Imports (+1.8%) are other indices that were reported to be growing at an increasing rate—each logging their eleventh straight month of growth. Supply-chain constraints can potentially serve as a major tailwind for inflation.

Equity markets traded flat to close our Refinitiv Lipper fund-flows week on Wednesday. I’d be remiss to not mention AMC’s trip to the moon. The stock reached as high as $72.62 with trading volume close to 800 million shares before closing around $60. For context, the once on-the-verge of bankruptcy movie theater company closed at $9.71 with roughly 31 million in shares traded only one month ago. The Federal Reserve released their Beige Book on Wednesday as well. This qualitative reported, which is published eight times a year, indicated that expectations changed very little while the Fed remains optimistic of future economic growth.

Exchange-Traded Equity Funds

Exchange-traded equity funds recorded $276 million in weekly net outflows. This is the macro-group’s second weekly outflow in the last three weeks. After returning 0.99%, on average, over the last week, equity ETFs posted their lowest four-week moving average since the first week of the year.

While growth/value large-cap ETFs led all equity ETF subgroups in inflows last week with $4.1 billion, they came up on the short end this week. The subgroup suffered $5.6 billion in weekly net outflows, marking its second week in three reporting outflows. The weekly outflow of $5.6 billion is the subgroup’s third largest weekly outflow over the past 12 months. In a distant second, sector healthcare/biotech ETFs witnessed $764 million leave their funds. On average the sector healthcare/biotech ETFs returned negative 0.96%, leading to their third straight week of outflows.

International equity ETFs (+$1.9 billion) once again have logged a significant inflow. The subgroup has eight consecutive weeks of inflows greater than $1.0 billion during their current run of 24 consecutive weeks of net inflows. The subgroup is closing in on growth/value large-cap ETFs for the top spot of year-to-date inflows (preliminary values indicate +$83 billion vs +$70.6 billion). Growth/value small-cap ETFs realized the second largest weekly inflow with $1.2 billion over the past fund-flows week—the subgroup’s fifth consecutive weekly inflow. Growth/value small-cap ETFs returned 2.05%, on average, and continued their performance hot streak as well. Small-caps, value, and international equity have certainly been trending since the start of the year.

Over the past fund-flows week, the top two equity ETFs in weekly inflows were SPDR S&P 500 ETF (SPY, +$1.6 billion) and iShares: Russell 2000 ETF (IWN, +$948 million). Meanwhile, four equity ETFs saw outflows of more than one billion: iShares: MSCI USA Momentum Factor (MTUM, -$1.6 billion), iShares: MSCI USA Quality Factor (QUAL, -$1.3 billion), iShares: Russell 1000 Gr ETF (IWF, -$1.1 billion), and Invesco QQQ Trust 1 (QQQ, -$1.1 billion).

Exchange-Traded Fixed Income Funds

Exchange-traded fixed income funds attracted $455 million—the macro-group’s smallest inflow since October 2019. Fixed income ETFs have reported four consecutive weeks of inflows and eight weeks of positive inflows in the last nine.

Flexible funds ETFs (+$337 million), government-Treasury ETFs (+$133 million), and government-mortgage ETFs (+$52 million) saw the largest weekly inflows under the fixed income ETF macro-group. Flexible funds ETFs recorded their tenth consecutive week of net inflows as the group returned 0.49%, on average, over the week.

Corporate high-yield ETFs (-$147 million) and corporate high-quality ETFs (-$16 million) realized the largest redemptions of all fixed income ETFs over the Refinitiv Lipper fund-flows week.

iShares: Core Total USD Bond (IUSB, +$521 million) and iShares: 5-10 Investment Grade Corporate Bond (IGIB, +$177 million) attracted the largest amounts of net new money under the macro-group. On the flip side, iShares: iBoxx Investment Grade Corporates (LQD, -$605 million) and iShares: 3-7 Treasury Bond ETF (HYB, -$320 million) suffered the largest individual net outflows. iShares: iBoxx Investment Grade Corporates (LQD) has reported the largest weekly outflow two weeks in a row.

Conventional Equity Funds

Conventional equity funds (ex-ETF) were net redeemers for the ninth consecutive week, realizing $4.3 billion in weekly outflows. All nine of the weekly outflows are more than $1.0 billion. Conventional equity funds posted a weekly return of 0.86% on average—their third straight week of positive performance.

Domestic equity funds (ex-ETF) saw outflows this week while posting their fifteenth straight week of being unable to attract new money (-$3.8 billion). The four-week moving average for conventional domestic equity funds has been more than $1.0 billion in outflows for more than a year straight. Non-domestic equities (ex-ETF) realized a small net outflow of $589 million—most of the ex-U.S. focused money went into non-domestic ETFs (+$1.7 billion).

Much like its ETF counterpart, growth/value large-cap conventional funds suffered the largest weekly outflows (-$2.7 billion)—even though the subgroup has positive performance over the last three weeks. This week marks the forty-ninth straight week of outflows for growth/value large-cap conventional funds. The last time this subgroup’s four-week moving average was positive was February 2019.

Conventional sector-other funds and sector-financial/banking funds witnessed the top inflows, pulling in $121 million and $37 million, respectively. Sector-other funds (ex-ETF) posted a positive return of 2.15% and logged their fifth straight week of inflows.

Conventional Fixed Income Funds

Conventional fixed income funds took in weekly inflows of $2.4 billion—its second consecutive week of inflows. The macro-group has only recorded two weeks of net outflows this calendar year.

Conventional fixed income funds were led by the corporate-investment grade subgroup (+$1.7 billion), recognizing their fifty-ninth straight week of inflows. Conventional flexible funds followed with $798 million in weekly net inflows—their seventh consecutive week of inflows.

Corporate high-yield funds (ex-ETF) suffered the largest weekly outflows under the macro-group (-$238 million)—marking the subgroup’s third straight week of outflows despite back-to-back weeks of positive performance.

Conventional municipal bond funds returned positive 0.26%, on average, over the fund-flows week and took in $864 million—their ninth week in a row of net inflows. The subgroup has reported positive performance for nine of the last 10 weeks. Conventional municipal bond funds have only recorded four total weeks of net redemptions in the past year.

More specifically on the non-domestic side, we took a deeper look last week at the Lipper European Region ETF classification which has seen an uptick in weekly flows.

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