June 17, 2021

U.S. Weekly FundFlows Insight Report: Municipal Bond ETFs Witness Largest Weekly Net Inflows on Record

by Tom Roseen.

Investors were overall net redeemers of fund assets (including those of conventional funds and ETFs) for the first week in six, with money market funds being the primary drain on funds. Investors redeemed a net $30.1 billion for Refinitiv Lipper’s fund-flows week ended June 16, 2021. Fund investors were net purchasers of taxable bond funds (+$2.0 billion) and tax-exempt fixed income funds (+$1.9 billion), while being net sellers of money market funds (-$26.8 billion) and equity funds (-$7.1 billion) for the week.

Market Wrap-Up

The U.S. broad-based indices remained range bound, hovering near record highs for the fund-flows week as investors appeared to shrug off news that U.S. inflation over the last year rose to a 13-year high of 5% from 4.2% from the month prior. In the meantime, they awaited news from the Federal Reserve’s policy-setting committee meeting later in the flows week.

The S&P 500 closed at new record highs early in week but was pressured after the Fed delivered a slightly hawkish message concerning monetary policy. On the domestic side of the equation, the NASDAQ Composite Price Only Index (+0.92%) witnessed the strongest plus-side returns of the other broadly followed U.S. indices for the fund-flows week. It was followed by the S&P 500 Price Only Index (+0.10%). The Dow Jones Industrial Average Price Only Index (-1.20%) witnessed the largest declines for the week. Overseas, the FTSE 100 Price Only Index (+1.31%) experienced the strongest returns of the often-followed broad-based global indices, while the Shanghai Composite Price Only Index (-2.13%) suffered the largest declines.

On Thursday, June 10, 2021, the S&P 500 closed the day at a record high as investors ignored a report that showed the May consumer-price index jumped to 0.6%, marking its fourth consecutive monthly increase. Nonetheless, the 10-year Treasury yield declined to 1.45%, its lowest closing value since March 2, 2021, as investors appeared to buy into the Fed’s position that recent inflationary pressures are transitory. Separately, the Department of Labor reported that first-time jobless claims for the week prior fell to 376,000, the lowest level since March of 2020. The S&P 500 posted another record close on Friday, June 11, rising just 0.2% on the day, after the University of Michigan reported that its preliminary estimate of consumer sentiment rose to 86.4 from 82.9 in May. Near-month oil futures closed at a two-year high of $70.91 per barrel (bbl).

The NASDAQ and S&P 500 closed at record highs on Monday, June 14, ahead of the FOMC update. The NASDAQ recorded its first record close since April 26 as investors anticipated that the Fed would keep interest rates near zero while maintaining its current bond buying practices, which some believe will be a tailwind for tech stocks. However, the 10-year Treasury yield rose four basis points (bps) on the day to settle at 1.51%. On Tuesday, June 8, stocks finished lower on mixed economic data. The May U.S. producer-price index rose 0.8%, pushing prices up 6.6% year over year. In a separate report, May retail sales declined 1.3%. Oil futures rose on the day, closing at $72.12/bbl. On Wednesday, June 16, the Dow booked its third day of losses after Federal Reserve Chair Jerome Powell delivered a slightly hawkish policy update which, while keeping its easy monetary policy unchanged, raised the Fed’s inflation forecast and signaled it expects to hike interest rates twice in 2023. The 10-year Treasury yield rose six bps to finish the fund-flows week at 1.57%.

Exchange-Traded Equity Funds

Equity ETFs witnessed their second consecutive week of net inflows—attracting $8.2 billion for the most recent fund-flows week. Authorized participants (APs) were net purchasers of domestic equity ETFs (+$8.4 billion), injecting money also for the second week in a row. Breaking a 25-week inflows streak, nondomestic equity ETFs witnessed net outflows, however, handing back just $197 million this past week. Invesco QQQ Trust 1 ETF (QQQ, +$2.3 billion) and iShares Core S&P 500 ETF (IVV, +$1.9 billion) attracted the largest amounts of net new money of all individual equity ETFs. At the other end of the spectrum, ProShares UltraPro QQQ ETF (TQQQ, -$811 million) experienced the largest individual net redemptions, and iShares MSCI EAFE ETF (EFA, -$645 million) suffered the second largest net redemptions of the week.

Exchange-Traded Fixed Income Funds

For the sixth week in a row, taxable fixed income ETFs witnessed net inflows, taking in $110 million this last week. APs were net purchasers of corporate investment-grade deb ETFs (+$1.4 billion), flexible ETFs (+$515 million), and government-Treasury ETFs (+$455 million), while being net redeemers of corporate high yield ETFs (-$2.2 billion). iShares 20+ Year Treasury Bond ETF (TLT, +$929 million) and iShares 0-5 Year TIPS Bond ETF (STIP, +$259 million) attracted the largest amounts of net new money of all individual taxable fixed income ETFs. Meanwhile, iShares iBoxx $ High Yield Corporate Bond ETF (HYG, -$1.8 billion) and iShares 1-3 Year Treasury Bond ETF (SHY, -$792 million) handed back the largest individual net redemptions for the week. For the sixteenth week in a row, municipal bond ETFs witnessed net inflows, taking in $704 million this week, their largest weekly net inflows on record going back to September 12, 2007, when Lipper began tracking weekly flows into municipal bond ETFs. iShares National Municipal Bond ETF (MUB, $316 million) witnessed the largest draw of net new money of the municipal bond ETFs in the subgroup for the week.

Conventional Equity Funds

Conventional fund (ex-ETF) investors were net redeemers of equity funds for the eleventh consecutive week—withdrawing $15.4 billion this week (its largest weekly net redemption since December 16, 2020)—with the macro-group posting a 0.12% market return for the fund-flows week. However, we anticipate this record outflow amount will be reversed next week. Several American Funds paid out long-term capital gains and income distributions, going ex-dividend on Wednesday, June 16, which were reflected by a drop in their total net assets for the day. This led to temporary weekly outflows. However, the supermajority of those distributions will be reinvested on June 17—reversing the outflows—and will be shown as net inflows next week.

Domestic equity funds, suffering net redemptions of slightly more than $15.0 billion, witnessed their twenty-fifth consecutive weekly net outflows while experiencing a 0.21% gain on average for the fund-flows week. Nondomestic equity funds—posting a 0.08% weekly loss on average—observed their third consecutive week of net outflows, but they handed back just $350 million this past week. On the domestic equity side, fund investors shunned large-cap funds (-$15.1 billion) and mid-cap funds (-$313 million). Investors on the nondomestic equity side were net redeemers of international equity funds (-$162 million) and global equity funds (-$189 million).

Conventional Fixed Income Funds

For the fourth consecutive week, taxable bond funds (ex-ETFs) witnessed net inflows—taking in $1.9 billion this past week—while posting a 0.25% loss for the fund-flows week. Investors were net purchasers of corporate investment-grade debt funds (+$2.6 billion), flexible funds (+$1.2 billion), and government-Treasury funds (+$261 million), while being net redeemers of government-mortgage funds (-$196 million). The municipal bond funds group posted a 0.04% gain on average during the week and witnessed its eleventh straight week of net inflows, attracting $1.1 billion this week. High Yield Municipal Debt Funds (+$584 million) experienced the largest net inflows of the group, followed by General & Insured Municipal Debt Funds (+$323 million).

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