October 21, 2021

U.S. Weekly FundFlows Insight Report: Investors Return to Funds After Two Straight Weeks of Redemptions

by Jack Fischer.

During Refinitiv Lipper’s fund-flows week ended October 20, 2021, investors were overall net purchasers of fund assets (including both conventional funds and ETFs) for the first week in three, adding $11.6 billion.

Money market funds (-$7.9 billion) suffered significant outflows for the third week in a row, while equity funds (+$10.9 billion), taxable bond funds (+$8.3 billion), and tax-exempt bond funds (+$177 million) all attracted new money during the fund-flows week.

Index Performance

At the close of Refinitiv Lipper’s fund-flows week, U.S. broad-based indices all reported positive results—the S&P 500 (+3.95%) and NASDAQ (+3.77%) led the way, recording their largest weekly performances since last October. The DJIA (+3.58%) and Russell 2000 (+2.13%) also logged substantial plus-side performance. Overseas, the broad market indices realized a strong week— Nikkei 225 (+3.10%), FTSE 100 (+2.48%), DAX 30 (+2.44%), and Shanghai Composite (+1.53%).

Rates/Yields

Compared to prior weeks, the shape of the Treasury yield curve ended the fund-flows week relatively unchanged. The two- and three-year Treasury yields rose 1.90% and 6.04%, respectively. The 10-year Treasury yield rose 5.55% over the week. The yield curve has significantly flattened since the end of Q1 2021, with the 10-two Treasury yield spread falling 20.55%. The two-year yield is up 134.38%, while the 30-year yield has fallen 12.88% throughout the last seven months. As of October 14, the U.S. 30-year fixed-rate mortgage average rose to 3.05%, marking the highest level since April (+2.01% week over week). Both the United States Dollar Index (DXY, -0.55%) and the VIX (-19.37%) decreased from last Thursday.

Market Recap

On Thursday, October 14, technology issues took center stage as the S&P 500 (+1.71%) and NASDAQ (+1.73%) logged their largest daily returns since March and May, respectively. Treasury yields falling across the board certainly helped—the two-, three-, and five-year Treasury yields fell more than 3% on the day, ending a seven-day streak of increases. The Department of Labor reported weekly jobless claims for unemployment benefits fell below 300,000 (to 293,000) for the first time during the pandemic era.

On Friday, October 15, the U.S. Department of Commerce reported retail and food services sales increased 0.7% from the prior month and 13.9% from last September. The report shows that Americans are continuing to shop despite the 4.0% year-over-year increase in the Consumer Price Index excluding food and energy (core-CPI). Refinitiv Proprietary Research reported that of the 41 companies in the S&P 500 that have reported Q3 earnings so far, 82.9% have reported earnings above analyst estimates—this tops the long-term average of 65.8%. The better-than-expected sales and earnings reports led to a sell-off in Treasury markets while giving a boost to U.S. equity indices—DJIA (+1.09%), S&P 500 (+0.75%), and NASDAQ (+0.50%).

To start the new calendar week on Monday, the alternative space grabbed the headlines. Oil traded at more than $83 per barrel, the price of bitcoin rose more than 2% on the eve of the cryptocurrency’s first ETF launch, and the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) increased four points to 80. Current sales conditions also increased five points to 87 (any number greater than 50 is a positive indicator). Short-term Treasury yields rose on the day—both the two-year (+4.99%) and three-year yields (+4.58%) were up. Technology companies continued to appreciate as the NASDAQ (+0.84%) and S&P (+0.34%) finished the day in the black.

Tuesday, October 19, marked the official launch of the new ProShares Bitcoin Strategy exchanged-traded fund (BITO). The long-awaited cryptocurrency ETF marks the first of its kind to list on a U.S. exchange. BITO does not invest directly in the highly volatile cryptocurrency—instead, it holds futures contracts that will essentially track its value. More cryptocurrency ETFs are expected to launch in the U.S. this year. BITO was up 4.7% on the day, with more than 23 million shares traded. The 10-two Treasury yield spread increased (+6.71%) by its largest total since March—the two-year Treasury yield fell 6.65%. The S&P 500 (+0.74%) and NASDAQ (+0.71%) realized their fifth straight daily gains.

Our fund-flows week wrapped up Wednesday, October 20, with broad-based U.S. indices trading mostly up, this time led by the small-cap focused Russell 2000 (+0.61%). The 10-two Treasury yield spread rose another 1.53% on the day as the 10-year yield reached a five-month high. Bitcoin hit a record high, trading at more than $66,000.

Exchange-Traded Equity Funds

Exchange-traded equity funds recorded $11.7 billion in weekly net inflows. This is the macro group’s third straight week of inflows. Equity ETFs have now logged back-to-back weeks of positive performance after realizing five straight weeks of negative performance.

Growth/value large-cap ETFs (+$4.9 billion), sector-technology ETFs (+$1.6 billion), and international equity ETFs (+$1.5 billion) attracted the largest weekly net inflows in the equity ETF macro-group. After three straight weeks of positive performance, on average, growth/value large-cap ETFs recorded their third straight week of net inflows. Sector-technology ETFs posted their largest inflows since August while international equity ETFs have realized 17 consecutive weeks of net inflows.

Sector-healthcare/biotech ETFs (-$328 million), sector-utilities ETFs (-$268 million), and sector-real estate ETFs (-$170 million) registered the largest outflows for the week. Despite consecutive weeks of plus-side performance, sector-healthcare/biotech ETFs and sector-real estate ETFs have posted outflows in three of the last four weeks. Sector-utilities ETFs have suffered outflows in four of the last five weeks.

Over the past fund-flows week, the top three equity ETF flow attractors were: SPDR S&P 500 ETF (SPY, +$2.7 billion), ProShares: Ultra S&P 500 (SSO, +$884 million), and Select Sector: Financial Sector SPDR (XLF, +$768 million).

Meanwhile, the bottom three equity ETFs in terms of weekly outflows were: SPDR Dow Jones Industrial Average (DIA, -$402 million), ProShares: UltraPro QQQ (TQQQ, -$377 million), and iShares: US Real Estate ETF (IYR, -$295 million).

Exchange-Traded Fixed Income Funds

Exchange-traded fixed income funds recorded $5.0 billion in weekly net inflows—the macro-group’s twelfth week of inflows over the last 13. Fixed income ETFs reported a weekly return of negative 0.22% on average.

Corporate-high yield ETFs (+$2.1 billion) and corporate-investment grade ETFs (+$1.4 billion) had the largest weekly inflows under the fixed income ETF macro-group. Corporate-high yield ETFs posted their first weekly inflows in three weeks as they returned a positive 0.36%. Corporate-investment grade ETFs have now observed back-to-back weeks of net inflows, even though the subgroup has suffered from four straight weeks of negative performance.

Government-Treasury ETFs (-$54 million), corporate-high quality ETFs (-$17 million), and government-Treasury & mortgage ETFs (-$12 million) were the only subgroups to record weekly outflows. Government-Treasury ETFs have only witnessed two weeks of outflows in the past six. Corporate-high quality ETFs have now logged nine weeks of outflows in the last 10 while government-Treasury & mortgage ETFs have recorded five straight weeks of outflows.

SPDR Bloomberg Barclays High Yield Bond (JNK, +$1.1 billion) and iShares: iBoxx $High Yield Corporates (HYG, +$837 million) attracted the largest amounts of weekly net new money for taxable fixed income ETFs.

On the other hand, iShares: 3-7 Treasury Bond ETF (IEI, -$529 million) and iShares: 20+ Treasury Bond ETF (TLT, -$314 million) suffered the largest net weekly outflows.

Conventional Equity Funds

Conventional equity funds (ex-ETFs) were net redeemers for the sixteenth time in 17 weeks (-$772 million). Conventional equity funds posted a weekly return of positive 3.29% on average, marking their largest weekly return since last November.

Domestic conventional equity funds saw outflows this week (-$1.3 billion), marking the seventeenth straight week of outflows. The subgroup has realized three straight weeks of positive performance. Nondomestic conventional equity funds reported a weekly inflow of $536 million, marking their second week of inflows in three.

International equity funds (+$569 million) and sector-energy funds (+$147 million) were the only subgroups to witness weekly inflows of more than $100 million under this macro-group. Both subgroups recorded positive weekly performance of 2.66%, and 2.57%, respectively. Sector-energy conventional funds have realized five consecutive weeks of positive performance.

Growth/value large-cap funds (-$1.0 billion) and growth/value-aggressive funds (-$243 million) saw the most money exit conventional equity funds. Growth/value large-cap funds have seen outflows in 68 of their last 69 weeks. The subgroup recorded a positive 3.73% on average over the fund-flows week—marking the largest weekly performance since last November. Growth/value-aggressive funds logged their twenty-ninth straight week of net outflows.

Conventional Fixed Income Funds

Conventional fixed income funds realized a weekly inflow of $3.4 billion—their tenth week of inflows in 11. The subgroup reported a weekly performance of positive 0.49% on average.

Conventional corporate-investment grade funds (+$2.5 billion) and flexible funds (+$844 million) led the macro-group in inflows. Corporate-investment grade funds observed their seventy-eighth week of inflows in 79. Conventional flexible funds recorded their twenty-seventh straight week of inflows.

Conventional corporate-high quality funds (-$232 million) and government-mortgage funds (-$86 million) suffered the only outflows under conventional fixed income funds. Corporate-high quality funds posted a negative 0.53% over the week as they notched their fourth straight week of outflows.

Municipal bond funds (ex-ETFs) returned negative 0.06% on average over the fund-flows week. The subgroup suffered $78 million in net outflows as they posted only their second week of outflows over the previous 29 weeks. The subgroup has reported negative weekly performance in six of the past seven weeks. Conventional municipal bond funds have only recorded four total weeks of net outflows this year.

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