by Tom Roseen.
Investors were overall net sellers of fund assets (including those of conventional funds and ETFs) for the first week in three, withdrawing a net $12.5 billion for Refinitiv Lipper’s fund-flows week ended October 6, 2021. However, the headline numbers continue to be a bit misleading, with short-term assets suffering the lion’s share of net outflows. Fund investors were net redeemers of money market funds (-$14.0 billion) and taxable bond funds (-$3.4 billion) while being net purchasers of equity funds (+$4.9 billion) and tax-exempt fixed income funds (+$37 million) for the week.
Rising inflationary fears, higher energy costs, supply-chain disruptions, an increasing likelihood of tighter monetary policy, and a debt ceiling impasse on Capitol Hill led to big market swings during the fund-flows week. However, the broad-market indices generally finished the flows week flat.
On the domestic side of the equation, the S&P 500 Price Only Index (+0.09%) posted the strongest returns of the broadly followed U.S. indices for the fund-flows week. It was followed by the Dow Jones Industrial Average Price Only Index (+0.08%). The Russell 2000 Price Only Index (-0.47%) witnessed the largest declines for the week. Overseas, the Shanghai Composite Price Only Index (+0.99%) chalked up the strongest performance of the often-followed broad-based international indices, while the Nikkei 225 Price Only Index (-6.26%) suffered the largest declines.
On Thursday, September 30, 2021, contributing to its worst monthly returns since October 2020, the Dow slid more than 546 points on the day to close the month down 4.29%, even after Congress passed a short-term spending bill to keep the government running through early December. Investors instead focused on inflationary concerns, an impasse among Democratic leaders in the House concerning two high profile spending bills, and a surprise increase in the prior week’s first-time jobless benefit claims, which rose to a two-month high. The 10-year Treasury yield, however, declined three basis points (bps) for the day to close at 1.52%, while oil futures continued their rise, settling at $75.03/barrel (bbl).
U.S. stocks ended sharply higher on Friday, October 1, after investors shrugged off news that the real personal consumption expenditure price index posted its sixth consecutive monthly increase, climbing 0.4% in August and pushing the year-over-year change to 4.3%, its highest since 1991. Investors cheered the report that the Institute for Supply Management’s September manufacturing index rose to 61.1 from the prior month’s 59.9 reading. Adding to the market cheer, Merck and partner Ridgeback Biotherapeutics announced their antiviral treatment for COVID-19 reduced the risk of hospitalization and death by 50% for patients with mild to moderate symptoms. Energy prices continued to soar after a report said that China had ordered state-owned energy companies to secure winter supplies at all costs to combat existing shortages on the continent. Near-month oil futures settled at $75.88/bbl.
In another big daily swing, on Monday, October 4, the Dow and NASDAQ ended down more than 300 points as the selloff continued on inflationary concerns driven by the recent oil rally and after Facebook suffered widespread outages across its platforms. This comes after the company was already in the spotlight in a CBS “60 Minutes” segment in which a whistleblower accused the social media firm of putting profits before the public good. The stock fell 4.9% on the day. U.S. oil rallied to a near seven-year high after OPEC+ decided to hold steady on previously agreed upon increases in crude output scheduled in November.
U.S. stocks managed to regain a chunk of lost ground on Tuesday, October 5, after the Institute of Supply Management reported its services index rose to a better-than-expected 61.9 in September. However, gains were capped after U.S. Treasury Secretary Janet Yellen said that the U.S. would fall into another recession if Congress didn’t move quickly to raise the debt limit. Near month oil futures rose 1.7% to settle at $78.93/bbl., while the 10-year Treasury yield rose five bps to 1.54%.
On Wednesday, October 6, the Dow posted its best same-day turnaround since December after Russia vowed to boost natural gas supplies to ease European shortages, there were signs of progress concerning the debt ceiling debate, and the September Automatic Data Processing report showed that 568,000 private sector jobs were created—beating analyst expectations of 425,000. Natural gas futures fell 10% for the day and oil prices eased as well, closing down 1.9% to $77.43/bbl.
Exchange-Traded Equity Funds
Equity ETFs witnessed their first week of net inflows in three—taking in $4.5 billion for the most recent fund-flows week. Authorized participants (APs) were net purchasers of domestic equity ETFs (+$1.8 billion), injecting money also for the first week in three. However, for the fifteenth straight week, nondomestic equity ETFs witnessed net inflows, attracting $2.7 billion this past week. International equity ETFs (+$2.7 billion) attracted the largest draw of net new money, followed closely by large-cap ETFs (+$2.4 billion) and sector-technology ETFs (+$761 million). Meanwhile, sector-healthcare/biotechnology ETFs (-$1.9 billion) suffered the largest net redemptions of the equity ETF macro-groups for the flows week.
iShares Core MSCI EAFE ETF (IEFA, +$1.4 billion) and Invesco QQQ Trust 1 ETF (QQQ, +$1.3 billion) 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, -$3.2 billion) experienced the largest individual net redemptions, and Health Care Select Sector SPDR ETF (XLV, -$1.1 billion) suffered the second largest net redemptions of the week.
Exchange-Traded Fixed Income Funds
For the first week in 11, taxable fixed income ETFs witnessed net outflows, handing back $2.7 billion this last week. APs were net purchasers of government-mortgage ETFs (+$12 million) while being net redeemers of corporate investment-grade debt ETFs (-$1.8 billion), international & global debt ETFs (-$380 million), and flexible ETFs (-$263 million). iShares 1-3 Year Treasury Bond ETF (SHY, +$1.0 billion) and iShares TIPS Bond ETF (TIP, +$462 million) attracted the largest amounts of net new money of all individual taxable fixed income ETFs. Meanwhile, iShares 20+ Year Treasury Bond ETF (TLT, -$2.1 billion) and iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD, -$2.0 billion) handed back the largest individual net redemptions for the week.
For the thirty-second week in a row, municipal bond ETFs witnessed net inflows, taking in $144 million this week. iShares Short-Term National Muni Bond ETF (SUB, +$83 million) and SPDR Nuveen Bloomberg Barclays Municipal Bond ETF (TFI, +$67 million) witnessed the largest draws 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 purchasers of equity funds for the first week in 15—injecting $412 million. The macro-group recorded a market loss of 0.19% for the fund-flows week. Domestic equity funds, suffering net redemptions of slightly less than $4.0 billion, witnessed their fifteenth consecutive week of net outflows while experiencing a 0.07% market gain on average for the fund-flows week. Nondomestic equity funds—posting a 0.79% weekly loss on average—observed their fourth week of net inflows in five, taking in $4.4 billion—their largest weekly net inflows since the week ended March 22, 2020, and their six largest on record going back to 1992.
On the domestic equity side, fund investors shunned large-cap funds (-$2.1 billion) and small-cap funds (-$712 million). Investors on the nondomestic equity side were net purchasers of international equity funds (+$4.3 billion) and global equity funds (+$82 million) for the week. TIAA-CREF International Equity Index Fund, Class W Shares (TCIWX, +$745 million) and TIAA-CREF Emerging Markets Equity Index Fund, Class W Shares (TENWX, +$353 million) attracted the largest amounts of net new money of all individual equity funds for the week.
Conventional Fixed Income Funds
For the first week in nine, taxable bond funds (ex-ETFs) witnessed net outflows—handing back $669 million this past week—while posting a 0.01% gain on average for the fund-flows week. Investors were net purchasers of flexible funds (+$321 billion), government-Treasury funds (+$43 billion), and balanced funds (+$33 million) while being net redeemers of corporate investment-grade debt funds (-$691 million), corporate high-quality funds (-$168 million), and international & global debt funds (-$143 million). Federated Hermes Institutional High Yield Bond, R6 Shares (FIHLX, +$187 million) and Great-West Bond Index Fund, Investor Class (MXBIX, +$133 million) took in the largest amounts of net inflows of all individual taxable fixed income funds during the week.
The municipal bond funds group posted a 0.04% gain on average during the week and witnessed its first week of net outflows in 27 but handed back just $107 million this week. Intermediate Municipal Debt Funds (+$213 million) experienced the largest net inflows of the group, while High Yield Municipal Debt Funds (-$318 million) suffered the largest net redemptions. MFS Municipal Intermediate Fund, Class A Shares (MIUAX, +$67 million) and Bridge Builder Municipal Bond Fund (BBMUX, +$51 million) took in the largest draws of net new money of the individual tax-exempt fixed income funds for the week.
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