July 22, 2021

U.S. Weekly FundFlows Insight Report: APs and Fund Investors Turn Their Backs on Equities for the Week

by Tom Roseen.

Investors were overall net redeemers of fund assets (including those of conventional funds and ETFs) for the sixth consecutive week, with equity funds being the primary drain on funds. Investors redeemed a net $4.9 billion for Refinitiv Lipper’s fund-flows week ended July 21, 2021. Fund investors were net purchasers of money market funds (+$1.9 billion), tax-exempt fixed income funds (+$1.7 billion), and taxable bond funds (+$315 million), while being net sellers of equity funds (-$8.8 billion) for the week.

Market Wrap-Up

The U.S. broad-based indices took a roller coaster ride during the fund-flows week, but ended the week once again near record highs as investors cheered a strong beginning to the Q2 corporate earnings season and upbeat economic reports, while keeping a concerned eye on the delta variant of the coronavirus and lofty equity valuations.

Early in the flows week, U.S. stocks broke their three-week win streak after learning about drooping consumer confidence. On the domestic side of the equation, the Russell 2000 Price Only Index (+1.44%) witnessed the only plus-side returns of the other broadly followed U.S. indices for the fund-flows week. It was followed by the NASDAQ Composite Price Only Index (-0.09%). The Dow Jones Industrial Average Price Only Index (-0.39%) witnessed the largest declines for the week. Overseas, the Shanghai Composite Price Only Index (+0.94%) experienced the only positive returns of the often-followed broad-based global indices, while the Nikkei 225 Price Only Index (-3.92%) suffered the largest declines.

On Thursday, July 15, 2021, stocks closed mixed even after Federal Reserve Chair Jerome Powell reiterated his views during his appearance before the Senate Banking Committee that he expects inflation pressures to fade, and the prior week’s first-time jobless claims fell to a new pandemic low of 360,000. However, with the increase in new coronavirus cases, supply chain shortages, a spike in inflationary fears, and the 10-year Treasury yield declining to 1.31%, investors remained on edge. U.S. stocks closed down on Friday, July 16, despite news of a better-than-expected June U.S. retail sales report and continued upbeat Q2 earnings reports after the preliminary reading of the University of Michigan’s consumer sentiment index fell to 80.8 in July from a final reading of 85.5 in June. Investors were shifting their focus from mostly upbeat Q2 earnings results to guidance for next quarter to glean an understanding of how the delta variant of the coronavirus might impact global growth expectations.  Oil closed up on the day to $71.81 per barrel (bbl), but down 3.7% for the week.

The Dow booked its largest one-day point decline (725 to 33,962.04) since October on Monday, July 19, on concerns of the spread of the delta variant and on increasing Sino-American tensions. The 10-year Treasury yield declined by 12 basis points (bps) on the day to settle at 1.19% and crude-oil futures settled below $67/bbl as investors worried about the possibility of new COVID-19 restrictions, which could erode consumer spending and dampen confidence. The Biden administration along with the European Union and United Kingdom blamed China for a hack of Microsoft’s Exchange email server earlier in the year, ramping up tensions between China and the U.S. On Tuesday, July 20, the S&P 500 posted its largest one-day gain since March 26, 2021, as investors bought the dip after Monday’s meltdown, which many thought was overdone. Despite some pundits rumbling about the possibility of stagflation, which hasn’t been seen in the U.S since the 1970s, the 10-year Treasury yield rose four bps to 1.23%. On Wednesday, July 21, the Dow closed up more than 285 points as the broad-based indices extended their rebound while investors cheered strong Q2 earnings reports from the likes of IBM, Coca-Cola, and Johnson & Johnson, reminding many that the economy is still on the mend.

Exchange-Traded Equity Funds

Equity ETFs witnessed their second week of net outflows in three—handing back $5.6 billion for the most recent fund-flows week. Authorized participants (APs) were net redeemers of domestic equity ETFs (-$7.4 billion), withdrawing money also for the second week in three. For the fourth week in a row, nondomestic equity ETFs witnessed net inflows, attracting $1.8 billion this past week. iShares Core S&P 500 ETF (IVV, +$1.4 billion) and iShares Core MSCI EAFE ETF (IEFA, +$1.2 billion) attracted the largest amounts of net new money of all individual equity ETFs. At the other end of the spectrum, Invesco QQQ Trust ETF (QQQ, -$4.1 billion) experienced the largest individual net redemptions, and SPDR S&P 500 ETF (SPY, -$3.7 billion) suffered the second largest net redemptions of the week.

Exchange-Traded Fixed Income Funds

For the second week in three, taxable fixed income ETFs witnessed net outflows, handing back $913 million this last week. APs were net purchasers of government-Treasury ETFs (+$1.2 billion), international & global debt ETFs (+$221 million), and flexible ETFs (+$176 million), while being net redeemers of corporate investment-grade debt ETFs (-$1.8 billion) and corporate high yield ETFs (-$745 million). iShares 7-10 Year Treasury Bond ETF (IEF, +$1.2 billion) and Schwab Intermediate-Term U.S. Treasury ETF (SCHR, +$295 million) attracted the largest amounts of net new money of all individual taxable fixed income ETFs. Meanwhile, iShares iBoxx $ Investment-Grade Corporate Bond ETF (LQD, -$1.3 billion) and iShares iBoxx $ High Yield Corporate Bond ETF (HYG, -$868 million) handed back the largest individual net redemptions for the week. For the twenty-first week in a row, municipal bond ETFs witnessed net inflows, taking in $282 million this week. iShares National Municipal Bond ETF (MUB, +$106 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 fourth consecutive week—withdrawing $3.2 billion this week—with the macro-group recording a 0.22% market loss for the fund-flows week. Domestic equity funds, suffering net redemptions of slightly more than $4.3 billion, witnessed their fourth consecutive weekly net outflows while experiencing a 0.15% gain on average for the fund-flows week. Nondomestic equity funds—posting a 1.04% weekly loss on average—observed their third consecutive week of net inflows, taking in $1.1 billion this past week. On the domestic equity side, fund investors shunned large-cap funds (-$2.7 billion) and small-cap funds (-$743 million). Investors on the nondomestic equity side were net purchasers of international equity funds (+$187 million) and global equity funds (+$955 million).

Conventional Fixed Income Funds

For the third consecutive week, taxable bond funds (ex-ETFs) witnessed net inflows—taking in $1.2 billion this past week—while posting a 0.07% loss for the fund-flows week. Investors were net purchasers of balanced funds (+$1.2 billion), corporate investment-grade debt funds (+$553 million), and flexible funds (+$158 billion), while being net redeemers of government-Treasury & mortgage funds (-$224 million) and government-Treasury funds (-$196 million). The municipal bond funds group posted a 0.07% gain on average during the week and witnessed its sixteenth straight week of net inflows, attracting $1.4 billion this week. High Yield Municipal Debt Funds (+$532 million) experienced the largest net inflows of the group, followed by General & Insured Municipal Debt Funds (+$299 million).

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