by Tom Roseen.
Investors were overall net purchasers of fund assets (including those of conventional funds and ETFs) for the second week in three, injecting a net $50.4 billion for Refinitiv Lipper’s fund-flows week ended September 22, 2021. However, the headline numbers are a bit misleading, with short-term assets attracting the lion’s share of net inflows. Fund investors were net purchasers of money market funds (+$49.6 billion), taxable bond funds (+$5.9 billion), and tax-exempt fixed income funds (+$1.6 billion) while being net redeemers of equity funds (-$6.7 billion) for the week.
From the potential default by China’s giant property company Evergrande to the Federal Reserve Board’s September FOMC meeting and U.S. debt ceiling jitters, there was plenty of headline news that contributed to U.S. broad-based indices’ decline during the fund-flows week.
On the domestic side of the equation, the Russell 2000 Price Only Index (-0.71%) did the best job mitigating losses of the broadly followed U.S. indices for the fund-flows week. It was followed by the NASDAQ Composite Price Only Index (-1.75%). The S&P 500 Price Only Index (-1.90%) witnessed the largest declines for the week. Overseas, the FTSE 100 Price Only Index (-0.39%) did the best job of mitigating losses of the often-followed broad-based international indices, while the Nikkei 225 Price Only Index (-3.15%) suffered the largest declines.
On Thursday, September 16, 2021, the U.S. major indices closed mixed despite August retail sales coming in at 0.7%, handily beating analyst expectations of 0.7% decline, and the Philadelphia Fed’s September activity index jumping to 30.7 from 19.4 in August. While the NASDAQ managed to close in positive territory, the S&P 500 and Dow suffered minor declines as investors took their collective foot off the pedal before Friday’s quadruple witching day, the Fed’s scheduled policy setting meeting in the following week, and on news that the prior week’s first-time jobless claims rose more than expected. Near-month gold futures declined 2.1% on the day to close at $1,756.70/oz.
U.S. stock indices closed down on Friday, September 17, after the University of Michigan’s gauge of consumer sentiment remained close to a 10-year low. The DJIA suffered its third consecutive week of declines—its longest losing streak since the four-week period ended September 25, 2020, after a daily increase in volatility was attributed to quadruple witching—the simultaneous expiration of stock options, single stock futures, stock index futures, and stock index options. The 10-year Treasury yield closed up three basis points (bps) to close out the day at 1.37%.
The Dow witnessed its worst one-day decline (-614.41 points) in nine weeks on Monday, September 20, as debt default concerns for China’s Evergrande rattled the market. Equities took it on the chin as investors evaluated the possible impact a default by debt laden Evergrande might have on the broader market and after the CBOE Market Volatility Index (VIX) jumped to its highest level (28.47%) since May. The 10-year-Treasury yield fell six bps to close at 1.31% for the day.
While the Dow and S&P 500 extended their losses to a fourth straight day on Tuesday, September 21, as markets struggled to recover from the prior day’s rout, investors looked for tapering clues from the Federal Reserve as it began its two-day policy setting meeting. The 10-year Treasury yield rose two bps to close out the day at 1.33%, while crude oil and gold futures rose modestly.
On Wednesday, September 22, the Dow and S&P 500 posted their strongest daily returns in two months after talks of restructuring Evergrande eased some of the market participants’ initial default concerns. Investors cheered the Fed’s decision to keep its bond-buying program and interest rates unchanged—at least for now. Nonetheless, stocks trimmed some of the early day gains after Federal Reserve Chair Jerome Powell said plans to taper its bond buying program could be announced at the Fed’s November FOMC meeting and it could start raising interest rates in 2022. The 10-year Treasury yield declined one bp on the day to close at 1.32%, while crude oil futures rose 2.5% to settle at $72.23/bbl.
Exchange-Traded Equity Funds
Equity ETFs witnessed their first week of net outflows in four—handing back $6.1 billion for the most recent fund-flows week. Authorized participants (APs) were net sellers of domestic equity ETFs (+$6.9 billion), redeeming money also for the first week in four. However, for the thirteenth straight week, nondomestic equity ETFs witnessed net inflows, attracting $783 million this past week.
ProShares UltraPro QQQ ETF (TQQQ, +$1.1 billion) and ProShares S&P 500 Dividend Aristocrats ETF (NOBL, +$986 million) attracted the largest amounts of net new money of all individual equity ETFs. At the other end of the spectrum, SPDR S&P 500 ETF (SPY, -$4.0 billion) experienced the largest individual net redemptions, and Invesco S&P 500 Equal Weight ETF (RSP, -$1.5 billion) suffered the second largest net redemptions of the week.
Exchange-Traded Fixed Income Funds
For the ninth week in a row, taxable fixed income ETFs witnessed net inflows, taking in $2.9 billion this last week. APs were net purchasers of government-Treasury ETFs (+$2.2 billion), corporate investment-grade debt ETFs (+$491 million), and flexible ETFs (+$366 million) while being net redeemers of international & global debt ETFs (-$329 million) and government-Treasury & mortgage ETFs (-$136 million).
iShares 20+ Year Treasury Bond ETF (TLT, +$621 million) and iShares iBoxx $ High Yield Corporate Bond ETF (HYG, +$552 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, -$857 million) and SPDR Bloomberg Barclays High Yield Bond ETF (JNK, -$527 million) handed back the largest individual net redemptions for the week.
For the thirtieth week in a row, municipal bond ETFs witnessed net inflows, taking in $196 million this week. SPDR Nuveen Bloomberg Barclays Municipal Bond ETF (TFI, +$78 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 thirteenth consecutive week—withdrawing $616 million. The macro-group recorded a market loss of 1.40% for the fund-flows week. Domestic equity funds, suffering net redemptions of slightly less than $664 million, also witnessed their thirteenth consecutive weekly net outflows while experiencing a 1.34% market decline on average for the fund-flows week. Nondomestic equity funds—posting a 1.56% weekly loss on average—observed their third consecutive week of net inflows, however, taking in just $48 million.
On the domestic equity side, fund investors shunned small-cap funds (-$276 billion) and large-cap funds (-$234 million). Investors on the nondomestic equity side were net purchasers of global equity funds (+$430 million) while being net redeemers of international equity funds, withdrawing $382 million for the week.
Conventional Fixed Income Funds
For the seventh week in a row, taxable bond funds (ex-ETFs) witnessed net inflows—taking in $3.1 billion this past week—while posting a 0.43% loss on average for the fund-flows week. Investors were net purchasers of flexible funds (+$1.4 billion), corporate investment-grade debt funds (+$1.0 billion), and corporate high-yield funds (+$241 million) while being net redeemers of government mortgage funds (-$117 million).
The municipal bond funds group posted a 0.03% loss on average during the week and witnessed its twenty-fifth straight week of net inflows, attracting $1.4 billion this week. General & Insured Municipal Debt Funds (+$492 million) experienced the largest net inflows of the group, followed by High Yield Municipal Debt Funds (+$408 million).
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