July 8, 2021

U.S. Weekly FundFlows Insight Report: Non-Domestic and Municipal Funds Shine While Real Estate ETFs Suffer Largest Weekly Outflows on Record

by Jack Fischer.

During Refinitiv Lipper’s fund-flows week ended July 7, 2021, investors were overall net redeemers of fund assets (including both conventional funds and ETFs) for the fourth week in a row, withdrawing $12.6 billion.

Money market funds (-$18.5 billion) and equity funds (-$4.3 billion) saw outflows, while taxable bond funds (+$8.0 billion) and tax-exempt bond funds (+$2.3 billion) attracted new money. Tax-exempt bond funds have attracted weekly net inflows for 18 consecutive weeks.

Market Wrap-Up

At the close of Refinitiv Lipper’s fund-flows week, U.S. broad-based indices traded positive outside the small cap-focused Russell 2000 (-2.50%). The S&P 500 (+1.41%), NASDAQ (+1.11%), and DJIA (+0.52%) all recorded positive weekly performance. The NASDAQ and the S&P 500 have eight straight fund-flows weeks of plus-side performance. Treasury yields fell across the yield curve as the two-10 Treasury yield spread dropped 7.53% on the week. Overseas indices logged mixed performance—FTSE 100 (+1.34%), DAX 30 (+0.53%), and Nikkei 225 (-1.18%). Both the United States Dollar Index (DXY) and VIX increased a touch over the week, 0.23% and 2.52%, respectively.

Thursday, July 1, started our third quarter and current fund-flows week with U.S. equity markets trading slightly positive—the Russell 2000 (+0.67%) and the S&P Growth Component (+0.67%) won the day. This was also the only day over the fund-flows week where Treasury yields rose; shorter-dated yields increased more than 3.0%. Treasury Secretary Janet Yellen announced that corporations may be seeing a new global tax minimum. Both companies that are investing abroad and foreign companies investing domestically would be subject to the proposed changes. WTI crude oil prices reached a three-year high, ending at more than $75 per barrel. The June 2021 Manufacturing ISM Report on Business reported the Manufacturing PMI (index at 60.6%) indicated economic expansion for the thirteenth consecutive month. Another crucial item was the Prices Index (92.1%) which increased 4.1% month over month and is now registering at the index’s highest level since July 1979. Jobless claims released by the Department of Labor revealed the lowest initials claims total since March 14, 2020 (364,000).

On Friday, July 2, broad-based U.S. equity markets other than the Russell 2000 (-1.01%) were trading positive. The S&P Growth Component recorded its best day of the week (+1.24%). Markets were pleasantly surprised by the 850,000 increase in nonfarm payrolls employment and the small change in the unemployment rate (5.9%). While this report boasted positive data, the U.S. still has 9.5 million unemployed versus the 5.7 million during the pre-pandemic era—the unemployment rate at the time was 3.5%. Job gains were led by the Leisure and Hospitality sector (+343,000), the largest attribution was the sub-sector Food and Services and Drinking Places, which picked up 194,300 new jobs. Treasury yields retreated on the day—the two-year yield fell 7.39%.

U.S. markets were closed on Monday in observance of Independence Day.

On Tuesday, July 6, NASDAQ (+0.17%) traded up, while the Russell 2000 (-1.36%), DJIA (-0.60%), and S&P 500 (-0.20%) ended the day in the red. The S&P snapped a seven-day streak of daily positive performance. The United Arab Emirates and Saudi Arabia entered a dispute over the levels of their oil production deal. WTI crude surpassed another multi-year high ending the day near $77 per barrel. The 10-year Treasury yield fell 4.33% to its lowest level since February. IHS Markit published its June U.S. Sector PMI report detailing various private sector indices. Healthcare (index at 67.0), consumer services (65.7), and financials (65.6) were the top-performing sectors in the report. All seven U.S. sectors reported indices over 50.0, which signifies expansion within the category.

Wednesday, July 7, ended our Refinitiv Lipper fund-flows week with the Russell 2000 (-0.95%) continuing its three-day slide. The remaining U.S. broad-based indices traded positive. MBA’s Mortgage Application Survey showed that application activity decreased for a second straight week and has reached its lowest level since the beginning of 2000 despite mortgage rates falling. The Bureau of Labor Statistics stated job openings were little changed at 9.2 million for May, highlighting the continued disconnect in the job market with more than 9 million still unemployed. Finally, notes from the June Federal Open Market Committee stated the Federal Reserve’s intention to keep the current monetary policy in place. However, a hawkish sentiment increasingly appears in their tone. The minutes also hinted an easing of asset purchases may come before any rate hikes. The FOMC notes stated:

“Participants generally judged that, as a matter of prudent planning, it was important to be well-positioned to reduce the pace of asset purchases, if appropriate, in response to unexpected economic developments, including faster-than anticipated progress toward the Committee’s goals or the emergence of risks that could impede the attainment of the Committee’s goals.”

Exchange-Traded Equity Funds

Exchange-traded equity funds recorded $793 million in weekly net outflows. This is the macro-group’s second weekly outflow in the last three despite returning a positive 0.33% on average.

Growth/value large-cap ETFs (+$2.9 billion), equity income ETFs (+$569 million), and international equity ETFs (+$484 million) were the three largest attractors of flows in the equity ETF universe. Growth/value large-cap ETFs have recorded four straight weeks of inflows and have taken in the top equity ETF spot in back-to-back weeks. Equity income ETFs are on a 21-week streak of net inflows, putting the subgroup on track for a record quarterly inflow in Q2.

Sector-other ETFs (-$1.5 billion), sector-real estate ETFs (-$1.2 billion), and growth/value-small-cap ETFs (-$1.2 billion) suffered the largest subgroup outflows for the week. Sector-other ETFs have now realized three consecutive weeks of outflows each of more than $1.2 billion, ending their previous 12-week streak of inflows. After seeing five straight weeks of inflows, sector-real estate ETFs realize their largest weekly outflow on record. The only other instances where sector-real estate ETFs saw more than $1 billion walk out the door were in December 2016 and August 2009.

Over the past fund-flows week, the two-top equity ETFs in weekly inflows were SPDR S&P 500 ETF (SPY, +$3.1 billion) and Invesco S&P 500 QVM Multi-factor ETF (QVML, +$760 million). Meanwhile, the two equity ETFs which reported the largest outflows were iShares: U.S. Real Estate ETF (IYR, -$1.5 billion) and iShares: Russell 2000 ETF (IWM, -$852 million).

Exchange-Traded Fixed Income Funds

Exchange-traded fixed income funds witnessed $287 million in weekly outflows—the macro-group’s first week of outflows over the previous nine weeks. Fixed income ETFs reported a weekly return of positive 0.44% on average—their third straight week of positive performance.

International & global debt ETFs (+$484 million) and flexible funds ETFs (+$387 million) had the largest weekly inflows under the fixed income ETF macro-group. While reporting a weekly return of positive 0.03%, international & global debt ETFs recorded their twenty-eighth largest inflow to date. Flexible funds ETFs realized their fifteenth consecutive week of inflows.

The only two subgroups to record weekly outflows of more than $2 million were corporate-investment grade ETFs (-$1.1 billion) and government-mortgage ETFs (-$398 million). This week’s outflow for corporate-investment grade ETFs marks the first outflows in the last four weeks and the largest since December 2000. Government-mortgage ETFs logged their best performing week since May 2000, yet still posted their first weekly outflow over the past four weeks.

iShares: 20+ Treasury Bond ETF (TLT, +$1.0 billion) and iShares: JPMorgan USD Emerging Markets Bond ETF (EMB, +$430 million) attracted the largest amounts of net new money under the macro-group. On the other hand, iShares: iBoxx $Investment Grade Corporate ETF (LQD, -$1.1 billion) and iShares: 7-10 Treasury Bond ETF (IEF, -$849 million) suffered the largest net weekly outflows.

Conventional Equity Funds

Conventional equity funds (ex-ETFs) were net redeemers for the thirteenth time in 14 weeks (-$3.5 billion). Conventional equity funds posted a weekly return of positive 0.42% on average—their eighth straight week of positive performance.

Domestic equity funds saw outflows this week (-$4.6 billion), marking the fifty-fourth week of outflows in the last 56. Nondomestic equities attracted a weekly inflow of $1.1 billion—their second time pulling in more than $1 billion in the last three weeks.

Conventional international equity funds (+$678 million) and global equity funds (+$378 million) realized the largest weekly inflows under the macro-group. Growth/value large-cap funds (-$2.5 billion) and growth/value small-cap funds (-$982 million) saw the most money exit over the week. Growth/value large-cap funds have seen outflows in 53 of their last 54 weeks. Meanwhile,  growth/value small-cap funds recorded their largest outflow since January.

Conventional Fixed Income Funds

Conventional fixed income funds realized a weekly inflow of $8.2 billion—their twelfth week of inflows in 14. The week marks the sixth-largest weekly inflow historically, after posting their largest weekly performance (+0.79%) in three weeks.

Conventional corporate investment-grade funds (+$5.1 billion) led the macro-group, recognizing their ninetieth largest weekly inflow to date. Corporate investment-grade funds have now marked their sixty-fourth consecutive week of inflows. Flexible funds (+$1.6 billion) also saw impressive weekly inflows—realizing their twelfth straight week of inflows.

Corporate high-quality funds (ex-ETF) suffered the only weekly outflows under the macro-group (-$171 million)—the subgroup’s third straight week of money leaving their funds.

Municipal bond funds (ex-ETFs) returned positive 0.31%, on average, over the fund-flows week and took in $2.0 billion—their fourteenth week in a row of net inflows and seventh-largest weekly total on record. The subgroup has reported positive performance for nine of the last 10 weeks. Municipal bond funds have only recorded two total weeks of net redemptions this year.

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