September 2, 2021

U.S. Weekly FundFlows Insight Report: Equity ETFs Attract Their Largest Weekly Net Inflows Since February 10, 2021, while Conventional Equity Funds Suffer Net Redemptions

by Tom Roseen.

Investors were overall net redeemers of fund assets (including those of conventional funds and ETFs) for the first week in six, withdrawing a net $1.1 billion for Refinitiv Lipper’s fund-flows week ended September 1, 2021. However, virtually all of the net outflows can be attributed to redemptions of short-term assets. Fund investors were net purchasers of equity funds (+$12.7 billion), taxable bond funds (+$5.3 billion), and tax-exempt fixed income funds (+$1.0 billion) while being net redeemers of money market funds (-$20.1 billion) for the week.

Market Wrap-Up

The U.S. broad-based indices started the fund-flows week on a sour note, with the S&P 500 breaking a five-day winning streak. The index, however, ended the week in record territory as investors digested dovish comments from the Federal Reserve Board’s Jackson Hole Economic Policy Symposium. A weaker-than-expected private sectors jobs report—which many thought was a harbinger to a slow approach to the Fed tapering its bond purchases—could not impede a winning month for equity issues. The S&P 500 finished August with its best year-to-date performance (+20.41%) since 1997 (+21.43%).

On the domestic side of the equation, the Russell 2000 Price Only Index (+2.13%) posted the strongest returns of the broadly followed U.S. indices for the fund-flows week. It was followed by the S&P 500 Price Only Index (+0.62%). The Dow Jones Industrial Average Price Only Index (-0.26%) witnessed the only declines for the week. Overseas, the Nikkei 255 Price Only Index (+2.71%) witnessed the strongest plus-side returns of the often-followed broad-based international indices, while the FTSE 100 Price Only Index (+0.39%) was the relative laggard.

On Thursday, August 26, 2021, the NASDAQ and S&P 500 closed down for the day, with the S&P 500 breaking a five-day winning streak as the world evaluated the news of a pair of deadly bombings outside of Afghanistan’s Kabul airport and the Labor Department’s report showing first-time jobless claims rose by 4,000 for the prior week to 353,000—the first rise in five weeks, which was slightly above analysts’ estimates. Ahead of scheduled comments by Federal Reserve Chair Jerome Powell on Friday, Kansas City Fed President Esther George said she backed tapering of the central bank’s asset purchases sooner rather than later. Nonetheless, the 10-year Treasury yield declined one basis point on the day to 1.34% as investors focused on the rise in caseloads and hospitalizations from the spread of the COVID-19 delta variant.

Despite a decline in the consumer-sentiment index, both the NASDAQ and S&P 500 closed at all-time highs on Friday, August 27. The S&P 500 posted its fifty-second record close of 2021 after investors interpreted Fed Chair Powell’s remarks at the Jackson Hole central bankers’ symposium as being dovish in nature. While Powell supported scaling back the Fed’s bond purchases later this year, he reiterated his belief that the recent surge in inflation is transitory and is being caused by supply-chain bottlenecks as well as an increased demand as the economy reopens. Powell’s comment came after the release of the PCE price index—the Fed’s preferred measure of inflation—which rose 0.4% in July and showed a 12-month rise of 4.2%, the highest since 1991. However, the core rate, stripping out food and energy prices, remained unchanged over the last 12 months at 3.6%.

Once again, the S&P 500 and NASDAQ finished the day at record highs on Monday, August 30, as investors bid up technology and consumer discretionary issues. Shrugging off the recent spike in the cost of living, uncertainty in Afghanistan, and the recent rise in COVID-19 cases, investors appeared to cheer Fed Chair Powell’s reassurances that the beginning of the tapering process wasn’t a signal that rate increases were imminent, thus providing a tailwind for equities. The yield on the 10-year Treasury note declined two basis points to 1.29%, but in the aftermath of Hurricane Ida, crude oil prices closed up 0.7% to $69.21/bbl., with nearly 95% of the U.S. Gulf Coast oil production being offline.

U.S. stocks declined modestly on Tuesday, August 31, closing out a winning month for August. The average equity fund posted a 2.00% return for the month, with India Region Funds (+7.86%), Financial Services Funds (+4.61%), and Health/Biotechnology Funds (+3.54%) leading the way. For the day, investors appeared to be influenced by growing inflationary pressures and concerns over increasing rates of COVID-19. The Conference Board reported that its index of consumer confidence slid to a six-month low of 113.8 in August from its revised July reading of 125.1. In other U.S. economic data, home prices rose 18.6% annually in June according to the Case-Shiller national home price index.

On Wednesday, September 1, the NASDAQ posted another record close with U.S. stocks ending mostly higher as investors turned their attention to jobs. Despite ADP’s private sector employment report coming in below analysts’ expectations—the private sector added just 374,000 jobs in August versus the forecasted 600,000—it appears investors viewed this second consecutive month of weak job creation as a possible sign for a prolonged implementation of the Fed’s plan to taper asset purchases this year.

Exchange-Traded Equity Funds

Equity ETFs witnessed their fifth week of net inflows in six—attracting $19.2 billion for the most recent fund-flows week, their largest weekly net inflows since February 10, 2021. Authorized participants (APs) were net purchasers of domestic equity ETFs (+$17.3 billion), injecting money also for the fifth week in six. For the tenth week in a row, nondomestic equity ETFs witnessed net inflows, attracting $1.9 billion this past week. SPDR S&P 500 ETF (SPY, +$6.9 billion) and Invesco QQQ Trust 1 (QQQ, +$3.8 billion) attracted the largest amounts of net new money of all individual equity ETFs. At the other end of the spectrum, Invesco S&P 500 High Beta ETF (SPHB, -$391 million) experienced the largest individual net redemptions, and Direxion Daily Semiconductor Bull 3x Shares (SOXL, -$321 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 $1.7 billion this last week. APs were net purchasers of corporate high-yield ETFs (+$917 million), flexible ETFs (+$605 million), and corporate investment-grade debt ETFs (+$428 million) while being net redeemers of government-Treasury ETFs (-$379 million) and international & global debt ETFs (-$26 million). SPDR Bloomberg Barclays High Yield Bond ETF (JNK, +$386 million) and iShares TIPS Bond ETF (TIP, +$365 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, -$818 million) and iShares 20+ Year Treasury Bond ETF (TLT, -$328 million) handed back the largest individual net redemptions for the week. For the twenty-seventh week in a row, municipal bond ETFs witnessed net inflows, taking in $163 million this week. iShares Short-Term National Municipal Bond ETF (SUB, +$56 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 tenth consecutive week—withdrawing $6.5 billion—with the macro-group recording a positive 1.09% market return for the fund-flows week. Domestic equity funds, suffering net redemptions of slightly more than $5.7 billion, witnessed their tenth consecutive weekly net outflow while experiencing a 0.86% gain on average for the fund-flows week. Nondomestic equity funds—posting a 1.61% weekly gain on average—observed their first week of net outflows in nine, handing back $754 million this past week. On the domestic equity side, fund investors shunned large-cap funds (-$4.3 billion) and small-cap funds (-$957 million). Investors on the nondomestic equity side were net redeemers of international equity funds (-$755 billion) while being net purchasers of global equity funds but injecting just $1 million for the week.

Conventional Fixed Income Funds

For the fourth week in a row, taxable bond funds (ex-ETFs) witnessed net inflows—taking in $3.6 billion this past week—while posting a 0.47% gain on average for the fund-flows week. Investors were net purchasers of corporate investment-grade debt funds (+$1.6 billion), flexible funds (+$861 million), and corporate high-quality debt funds (+$384 million) while being net redeemers of government-mortgage funds (-$62 million). The municipal bond funds group posted a 0.07% gain on average during the week and witnessed its twenty-second straight week of net inflows, attracting $881 million this week. High Yield Municipal Debt Funds (+$379 million) experienced the largest net inflows of the group, followed by General & Insured Municipal Debt Funds (+$224 million).

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