During Refinitiv Lipper’s fund-flows week ended August 11, 2021, investors were overall net purchasers of fund assets (including both conventional funds and ETFs) for the third consecutive week, accumulating $24.7 billion.
Money market funds (+$10.5 billion), taxable bond funds (+$8.2 billion), equity funds (+$4.2 billion), and tax-exempt bond funds (+$1.9 billion) all attracted new money.
Market Wrap-Up
At the close of Refinitiv Lipper’s fund-flows week, small-cap, industrial, and financial issues led the U.S. equity market in weekly performance. The Russell 2000 (+2.46%) reported only its second positive performing week since the end of June. The DJIA (+1.99%) and S&P 500 (+1.02%) also ended on the plus side, while the NASDAQ (-0.10%) closed in the red for the first time in three weeks. Overseas, the Shanghai Composite (+1.21%), FTSE 100 (+1.05%), and Nikkei 225 (+0.92%) logged plus-side performance.
During the fund-flows week, the two-10 Treasury yield spread increased by 11.58%. There was only one day all week that saw Treasury yields decrease. The two- and three-year Treasury yields are up 21.43% and 32.65%, respectively, over the week. As of August 5, the U.S. 30-year fixed-rate mortgage average fell to 2.77% (-1.07%)—the lowest average level since February. The United States Dollar Index (DXY) increased 0.71%, as the VIX decreased 12.79% on the week.
On Thursday, August 5, broad-based U.S. markets traded positive, with the small-cap focused Russell 2000 ending the daily session in the top spot (+1.81%). Both the two- and three-year Treasury yields increased over 10%, marking their largest one-day spike in a month. The weekly unemployment report showed first-time jobless claims at 385,000—in line with expectations (383,000). Continuing claims also came in around expectations (2.9 million versus 3.0 million). Federal Reserve Vice Chair Richard Clarida said that he might support lifting interest rates in early 2023 if the unemployment rate falls to 3.8% by the end of this year (currently at 5.4%). He also weighed in on the Fed’s asset purchasing program, saying,
“If my baseline outlook does materialize, then I can certainly see supporting announcing a reduction in the pace of our purchases later this year.”
Just last week Fed Chairman Jerome Powell also suggested that tapering the Fed’s quantitative easing policy could happen in the near future. The NASDAQ and S&P 500 both closed at record highs.
Friday, August 6, kicked off with the Department of Labor’s July jobs report that revealed a stronger-than-expected bounce in employment—the economy added 943,000 jobs versus expectations of 845,000. Leisure and hospitality logged the majority of gains, adding 380,000 jobs throughout the month. The unemployment rate registered as 5.4% (versus expected 5.7%). Value and small-cap issues outperformed technology and growth equities for the second straight day—Russell 2000 (+0.53%), DJIA (+0.41%), S&P 500 (+0.17%), and NASDAQ (-0.40%). Both the DJIA and S&P 500 closed the week at fresh record highs. Refinitiv Proprietary Research reported that of the 443 companies in the S&P 500 that have published Q2 earnings as of Friday, 87.4% have reported earnings above analyst estimates.
To start the new calendar week on Monday, the Department of Labor’s Job Openings and Labor Turnover (JOLTS) report indicated the U.S. had more than 10 million job openings in June—the largest job openings total on record. The job market still has a way to go, as Friday showed there were still 8.7 million Americans unemployed. The JOLTS report also disclosed the layoff and discharge rate is at a record low (0.9%). U.S. equity markets traded negative outside the NASDAQ (+0.16%). Both the VIX (+3.34%) and the 10-year Treasury yield (+2.25%) jumped on the day.
Tuesday, August 10, saw the NASDAQ (-0.49%) underperform the broader market—DJIA (+0.46%), Russell 2000 (+0.20%), and S&P 500 (+0.10%). U.S. Treasury yields rose for the fifth consecutive day, led by the two-year yield (+8.18%). The two-10 Treasury yield spread reached its largest level in a month. Industrials and financials rallied on the news that the U.S. Senate passed the $1 trillion infrastructure bill. This bill includes more than $550 billion in new spending on electric grids, rail services, and roadways. The bill still needs to be approved by the House of Representatives.
Our fund-flow week wrapped up Wednesday, August 11. The highly anticipated July Consumer Price Index (CPI) was published showing overall CPI remained at 13-year highs (+5.4%). While the annual increase remained high, the month-over-month core-CPI (which excludes food and energy) increased at a slower pace (+0.3%) from last month (+0.9%). This figure can be interpreted as evidence of transitory inflation which the Fed has long predicted. July’s deceleration from June’s month-over-month core-CPI increase could keep the Fed from raising rates sooner than expected. The two-year yield fell 2.14%—the largest decline in a month. Equity markets reacted positively and the Russell 2000 appreciated (+0.49%), while the DJIA and S&P 500 closed at record highs. The VIX decreased on the day (-4.53%).
Infrastructure spending, the Delta COVID-19 variant, inflationary pressures, and employment data were key factors this week that has shifted and will continue to shift market sentiment and capital flows.
Exchange-Traded Equity Funds
Exchange-traded equity funds recorded $6.0 billion in weekly net inflows. This is the macro-group’s third straight week of net inflows, and it returned a positive 0.83% on average.
Growth/value large-cap ETFs (+$3.5 billion), sector-financial/banking ETFs (+$1.4 billion), and sector-utilities ETFs (+$694 million) were the three largest attractors of new money in the equity ETF macro-group. Growth/value large-cap ETFs recorded their second week of net inflows in the past three. The subgroup has ended up in the top equity ETF spot in five out of the past six weeks. As yields rise and inflationary fears subsided over the week, sector-financial/banking ETFs pulled in their largest weekly inflows since May. The subgroup logged a return of positive 5.58%—marking their largest weekly return since November 2020. While appreciating 2.04%, on average, sector-utilities ETFs raked in their tenth-largest weekly inflow to date.
Sector-other ETFs (-$495 million), growth/value-aggressive ETFs (-$331 million), and gold and natural resources ETFs (-$139 million) suffered the largest subgroup outflows for the week. Sector-other ETFs have reported six weeks of outflows in the last eight and have maintained a negative net flow four-week moving average in seven straight weeks. Despite four straight weeks of positive weekly performance, on average growth/value-aggressive ETFs reported their first weekly outflows in three weeks. Gold and natural resources ETFs have seen four weeks of negative flows over the past five. The subgroup has suffered nine out of the 10 prior weeks with negative performance.
Over the past fund-flows week, the top four equity ETFs were: Invesco QQQ Trust (QQQ, +$1.9 billion), Utilities Select Sector SPDR (XLU, +$678 million), Invesco KBW Bank (KBWB, +$558 million), and SPDR S&P Regional Banking (KRE, +$517 million). Meanwhile, the bottom three equity ETFs for weekly outflows were Health Care Select Sector SPDR (XLV, -$475 million), ProShares UltraPro QQQ (TQQQ, -$336 million), and Industrial Select Sector SPDR (XLI, -$280 million).
Exchange-Traded Fixed Income Funds
Exchange-traded fixed income funds recorded $4.9 billion in weekly net inflows—the macro-group’s twelfth week of inflows over the previous 14. Fixed income ETFs reported a weekly return of negative 0.60% on average—their first week of negative performance in the last four.
Corporate-investment grade ETFs (+$2.8 billion) and government-Treasury ETFs (+$1.2 billion) had the largest weekly inflows under the fixed income ETF macro-group. Corporate-investment grade ETFs reported their first weekly inflow in four weeks. Despite recording their first week of negative performance in eight, government-Treasury ETFs realized their fourth consecutive week of net inflows totaling more than $1 billion each. Government-Treasury ETFs have seen 11 weeks of positive inflows in their last 12.
The government-mortgage ETFs (-$523 million) subgroup recorded weekly outflows, marking the third weekly outflow in the last four weeks. The subgroup posted a negative 0.30% weekly return on average, which is their first week of negative performance in eight.
iShares: iBoxx Investment Grade Corporates (LQD, +$2.1 billion) and iShares: iBoxx High Yield Corporates (HYG, +$1.0 billion) attracted the largest amounts of net new money under the taxable fixed income ETF macro-group. On the other hand, iShares MBS (MBB, -$520 million) and SPDR Bloomberg Barclays High Yield Bond (JNK, -$457 million) suffered the largest net weekly outflows.
Conventional Equity Funds
Conventional equity funds (ex-ETFs) were net redeemers for the nineteenth time in 21 weeks (-$1.9 billion). Conventional equity funds posted a weekly return of positive 0.74% on average—their third straight week of positive performance.
Domestic conventional equity funds saw outflows this week (-$4.0 billion), marking the fifty-ninth week of outflows in the last 61. The subgroup has realized four consecutive weeks of positive performance. Nondomestic conventional equity funds attracted a weekly inflow of $2.2 billion—their sixth straight week posting inflows.
Conventional international equity funds (+$2.6 billion) and sector-other funds (+$89 million) realized the largest weekly inflows under the macro-group. International equity funds witnessed their sixth straight week of inflows after returning back-to-back weeks of positive performance. Last week the subgroup logged their ninth-largest weekly inflow to date. They have followed up with their eighteenth largest weekly inflow—leading the international equity funds to their largest four-week moving average since March 2018. Sector-other funds reported positive weekly performance on average (+0.58%) as they logged their third week of net inflows in a row.
Growth/value large-cap funds (-$2.9 billion) and growth/value small-cap funds (-$1.1 billion) saw the most money leave under conventional equity funds. Growth/value large-cap funds have seen outflows in 58 of their last 59 weeks as they suffer their largest weekly outflows since June. Despite banking their largest weekly return since May (+2.03%), growth/value small-cap funds registered their eighth consecutive weekly outflows.
Conventional Fixed Income Funds
Conventional fixed income funds realized a weekly inflow of $3.3 billion—their tenth week of inflows in 12. The subgroup reported a weekly performance of negative 0.22%, on average.
Conventional flexible funds (+$1.5 billion) led the macro-group, realizing their seventeenth straight week of inflows. Conventional corporate investment-grade funds (+$1.2 billion) also observed significant weekly inflows—recognizing their sixty-ninth consecutive week of inflows.
Only two conventional fixed income subgroups realized weekly outflows: government-mortgage funds (-$31 million) and corporate-high quality funds (-$9 million). Government-mortgage funds posted their fourth week of outflows in the past six. Corporate-high quality funds suffered their eighth straight week of outflows. Both subgroups recorded negative weekly performance (-0.48% and -1.21%, respectively).
Municipal bond funds (ex-ETFs) returned negative 0.24% on average over the fund-flows week—yet they attracted inflows ($+1.7 billion) and posted their ninetieth week in a row of net inflows. The subgroup has reported positive performance in five of the last seven weeks. Municipal bond funds have only recorded two total weeks of net redemptions this year.
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