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December 16, 2021

U.S. Weekly FundFlows Insight Report: Fund Market Suffers Outflows for the First Time in Two Months Despite Large Cap ETFs Attracting $18.8 Billion

by Jack Fischer.

During Refinitiv Lipper’s fund-flows week ended December 15, 2021, investors were overall net redeemers of fund assets (including both conventional funds and ETFs) for the first week in nine, withdrawing $50.6 billion.

Equity funds (-$4.4 billion), taxable bond funds (-$6.9 billion), and money market funds (-$1.1 billion) all suffered outflows during the fund-flows week. Tax-exempt bond funds (+$728 million) were the only asset class to attract inflows.

Index Performance

At the close of Refinitiv Lipper’s fund-flows week, U.S. broad-based indices traded mixed with the DJIA (+0.48%) and S&P 500 (+0.18%) logging plus-side performance, while the Russell 2000 (-3.37%) and NASDAQ (-1.40%) realized negative weekly performance.

Overseas broad market indices ended the week down as well—FTSE 100 (-2.27%), DAX 30 (-2.05%), and Nikkei 225 (-1.33%).

Rates/Yields

Longer-dated Treasury yields fell over the week—10- and 30-year yields fell 3.11% and 1.17%, respectively. While both yields have risen since the start of the year, they have fallen by double-digit percentage points since the end of Q1 2021. The two-year Treasury yield rose slightly (+1.18%) to end the fund-flows week. Since the end of Q1 2021, the two-year yield is up more than 300%.

The U.S. 30-year fixed-rate mortgage average moved back down to 3.10%, a 0.32% decrease from last week. The United States Dollar Index (DXY, 0.64%) increased over the week, while the VIX (-3.38%) dipped a touch.

Market Recap

Our fund-flows week kicked off Thursday, December 9, with the Department of Labor (DOL) reporting first-time weekly unemployment claims falling to the lowest level in 52 years—184,000 actual versus 220,000 expected. Oil futures fell more than 2% to below $71 per barrel. Equity markets ended their three-day win streak as market participants cautiously awaited Friday’s publication of November’s Consumer Price Index (CPI). Russell 2000 (-2.27%), NASDAQ (-1.71%), S&P 500 (-0.72%), and DJIA (-0.00%) all traded down on the day.

Friday, December 10, was highlighted by yet another CPI release. Typically, employment data grabs most of the market’s attention, but as we get closer to full employment, price stability takes the cake. DOL reported November’s CPI rose by 6.8% over the last 12 months, the largest increase since 1982. The more relevant core-CPI was up 4.9%, which marked a new 30-year high. Both overall CPI (+0.8%) and core-CPI (+0.5%) recorded lower monthly increases than in September and October. With the combination of a tightening labor market and persistent price increases, the Federal Reserve may look to speed up its asset purchase tapering timeline in order to raise interest rates. A huge component to a speedier timeline will be wage growth; wage increases add to inflationary pressures but are much stickier than price increases due to supply chain constraints. Equity markets ended the week on a high note outside the Russell 2000 (-0.38%)—S&P 500 (+0.95%), NASDAQ (+0.73%), and DJIA (+0.60%).

On Monday, December 13, equity markets retreated over uncertainty surrounding the Covid-19 omicron variant which has been causing roughly 200,000 infections a day in the U.K.—Russell 2000 (-1.42%), NASDAQ (-1.39%), S&P 500 (-0.91%), and DJIA (0.89%). Investors also paused as they anticipated possible moves by the Fed later this week. Treasury yields along the curve each fell by more than 2%—headlined by the two-(2.57%) and 10-year (-4.37%).

Tuesday, December 14, saw equity markets fall for the second straight day as investors ingested more inflationary data. The Producer Price Index (PPI) increased at an annual rate of 9.6% and a monthly rate of 0.8%. Core-PPI (excluding food and energy) rose at a 12-month rate of 6.9% and a monthly rate of 0.7%. The annual core-PPI spike was the largest since annual core numbers were first calculated in 2014.

Our fund-flows week wrapped up Wednesday, December 15, with the Fed’s latest policy meeting. Since Fed Chair Jerome Powell retired the “T-word”, he has started to emphasize the importance of stable prices over the Fed’s full employment mandate. The Fed announced it will speed up its tapering program while indicating three potential interest rate increases next year. Equity markets finished the daily session on the plus side as Treasury yields increased—led by the two-year (+4.25%). While increased interest rates will help ease inflationary pressures, the International Monetary Fund (IMF) warned that there still are economic risks to raising rates too quickly. Increased borrowing costs paired with decreasing economic growth have the potential to compound the original problem. Needless to say, this is a delicate situation.

Exchange-Traded Equity Funds

Exchange-traded equity funds recorded $15.9 billion in weekly net inflows for the second time in two weeks. This is the macro-group’s eleventh straight week of inflows. Equity ETFs were the only macro group to record inflows over the past week.

Growth/value large-cap ETFs (+$18.8 billion), growth/value-aggressive ETFs (+$1.2 billion), and gold and natural resources ETFs (+$808 million) were the three largest attractors of new money under the macro-group. Growth/value large-cap ETFs recorded their third straight week of inflows and their fourth-largest weekly intake on record.

International equity ETFs (-$4.2 billion) and sector-other ETFs (-$832 million) suffered the largest weekly outflows for equity ETFs. International equity ETFs reported their third straight week of outflows while they logged their sixth-largest weekly outflow total to date. This was the largest weekly outflow since August 2019.

Over the past fund-flows week, the top three equity ETF flow attractors were SPDR S&P 500 ETF (SPY, +$14.2 billion), Invesco QQQ Trust 1 (QQQ, +$2.9 billion), and Invesco S&P 500 Equal Weight (RSP, +$1.3 billion). This was SPY’s fifth-largest weekly inflow on record and the largest since December 2014.

Meanwhile, the bottom three equity ETFs in terms of weekly outflows were iShares: Core S&P 500 ETF (IVV, -$4.8 billion), iShares: Core MSCI Emerging Markets ETF (IEMG, -$1.2 billion), and Schwab US Dividend Equity ETF (MTUM, -$1.2 billion).

Exchange-Traded Fixed Income Funds

Exchange-traded fixed income funds recorded $885 million in weekly net outflows—the macro-group’s second week of outflows in three. Fixed income ETFs reported a weekly return of negative 0.03% on average—the macro-group’s fourth week of negative performance in five.

Corporate-investment grade ETFs (+$674 million) and international & global ETFs (+$296 million) were the top two attractors of new money under fixed income ETFs. While posting a positive 0.05% over the week, corporate-investment grade ETFs reported their fifth week of positive inflows over the past six. The subgroup is on pace to set its lowest quarterly intake since Q1 2020.

Government-Treasury ETFs (-$1.0 billion) and corporate-high yield ETFs (-$444 million) witnessed the largest outflows under the fixed income ETF macro-group. Government-Treasury ETFs have recorded back-to-back weeks of negative performance (-0.07% and -0.51%). The subgroup has ended its seven-week streak of inflows as they suffered the largest outflow since the first week of May.

iShares: Core US Aggregate Bond ETF (AGG, +$767 million), and iShares: 7-10 Treasury Bond ETF (IEF, +$348 million) attracted the largest amounts of weekly net new money for taxable fixed income ETFs.

On the other hand, iShares: 20+ Treasury Bond ETF (TLT, -$941 million) and iShares: 3-7 Treasury Bond ETF (IEI, -$335 million) suffered the largest net weekly outflows.

Conventional Equity Funds

Conventional equity funds (ex-ETFs) were net redeemers for the tenth week in a row (-$17.2 billion). Conventional equity funds posted a weekly return of negative 1.15% on average, marking their third week of sub-zero performance in the last four. This was the macro-group’s largest weekly outflow since the beginning of January 2020.

Sector-technology funds (+$1.0 million) were the only subgroup to post weekly inflows under conventional equity funds. Despite a negative 2.68% return on average over the past week, the conventional sector-technology funds logged their nineteenth largest inflow total on record—each of the 18 larger weekly intakes was during the end of the dot-com bubble.

The conventional equity fund subgroups which realized outflows greater than $1 million were growth/value large-cap (-$7.3 billion), growth/value aggressive (-$2.7 billion), international equity (-$2.6 billion), growth/value small-cap (-$1.7 billion), global equity (-$1.4 billion), and equity income funds (-$1.0 billion). This was growth/value large-cap’s largest weekly outflow since June and growth/value aggressive funds’ fifth-largest weekly outflow on record.

Conventional Fixed Income Funds

Conventional fixed income funds realized a weekly outflow of $3.9 billion—their four-week moving average has hit its largest negative total since April 2020. The subgroup reported a weekly performance of negative 0.03%, on average.

Conventional government-Treasury funds (+$873 million) and corporate-high yield (+$244 million) led the macro-group in inflows. Government-Treasury funds have now recorded 19 straight weeks of net inflows. The subgroup is on pace to record its seventh straight quarter of total inflows, as well as their largest calendar year inflow total by a long shot.

Conventional corporate-investment grade funds (-$1.9 billion) and balanced funds (-$1.5 billion) suffered the largest outflows under conventional fixed income funds. Corporate-investment grade funds observed their third consecutive week of outflows—each over $1.9 billion. Their four-week moving average has also touched its largest outflow number since April 2020.

Municipal bond funds (ex-ETFs) returned positive 0.01% on average over the fund-flows week. The subgroup experienced $285 million in inflows, marking their second week in a row of logging inflows. Conventional municipal bond funds have only recorded five total weeks of net outflows this year. Conventional municipal bond funds have cooled off in Q4 2021. After starting off hot posting $23.5 billion, $21.9 billion, and $24.0 billion in the first three quarters, the sub-group may not break $10 billion in Q4.

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