During Refinitiv Lipper’s fund-flows week ended February 23, 2022, investors were overall net purchasers of fund assets (including both conventional funds and ETFs) for the first week in four, adding a net $3.9 billion.
Money market funds (+$6.3 billion) and equity funds (+$254 million) were able to attract new capital over the week. Both taxable (-$1.5 billion) and tax-exempt (-$1.2 billion) fixed income funds suffered weekly outflows.
Index Performance
At the close of Refinitiv Lipper’s fund-flows week, U.S. broad-based equity indices recorded negative weekly performance. The Nasdaq (-7.69%), Russell 2000 (-6.50%), S&P 500 (-5.58%), and DJIA (-5.16%) logged their second straight week of significant negative performance. The Nasdaq reported its lowest weekly performance since the start of the pandemic.
The Bloomberg U.S. Aggregate Bond Total Return Index struggled, reporting a negative 0.12%—marking the index’s eighth week in nine ending in the red. The Bloomberg Municipal Bond Total Return Index recorded its first week in positive territory (+0.27%) in eight.
Overseas broad market indices traded deep in the red—the DAX 30 (-5.15%), Nikkei 225 (-3.35%), and FTSE 100 (-1.53%) each depreciated over the week.
Rates/Yields
The Treasury yield curve continued to flatten over the week—the two- and three-year Treasury yields rose 4.64% and 0.74%, respectively. This was the fourth week in a row where the 10-two Treasury yield spread fell, marking its third week in four falling by more than 10% (-26.94%).
As of February 17, the U.S. 30-year fixed-rate mortgage average rose to 3.92%—a 6.23% increase from the prior week as it records its largest level in more than one year. Both the United States Dollar Index (DXY, +0.51%) and VIX (+21.70%) increased over the week.
Market Recap
Our fund-flows week kicked off Thursday, February 17, with all eyes drawn to the overseas conflict between Russia and Ukraine. President Joe Biden warned that the possibility of a Russian invasion was “very high.” Up to this point, Moscow has continually denied any invasion plan and has even gone on to call the allegations “hysteria.” Ukraine has repeatedly denied Russia’s demands for assurances that it will never join the NATO military alliance. In the U.S., St. Louis Fed President James Bullard said, “The Fed should move faster and more aggressively than it would in other circumstances.” Bullard has voiced his support for a 100-basis-point (bps) interest rate increase by July 1. The geopolitical conflict between Russia and Ukraine will only further inflame inflationary pressures around the globe, as Russia is a major supplier of oil, wheat, and other commodities to the EU. International uncertainty led both the Nasdaq (-2.88%) and 10-year Treasury yield (-3.47%) to fall on the day.
Friday, February 18, only saw tensions between Russia and Ukraine escalate further. The U.S. Ambassador to the Organization for Security and Cooperation in Europe said Russia has added roughly 69,000 to 90,000 troops in and near the Ukrainian border, totaling at the time about 169,000 to 190,000. President Biden said he believed Russia is “planning and intend to attack Ukraine in the coming week, in the coming days.” He has reiterated the U.S. stance of protecting NATO territory from any outside threat (Ukraine is currently not a NATO member). Major U.S. equity markets fell for the second straight day as investors moved into fixed income positions—Nasdaq (-1.23%), Russell 2000 (-0.93%), S&P 500 (-0.72%), and DJIA (-0.68%) fell on the day. The 10-year Treasury yield also decreased (-2.23%).
On Monday, February 21, U.S. markets were closed for the Presidents Day holiday, but tensions continued to intensify in eastern Europe. President Vladimir Putin announced that Russia will now recognize two separate territories in eastern Ukraine as separate, independent regions. Putin went on to say, “Ukraine for us is not just a neighboring country, it is an integral part of our own history, culture, and spiritual space.”
On Tuesday, February 22, the first batch of economic sanctions were officially announced following Russia’s continued aggression against Ukraine. President Biden signed an executive order expanding on current sanctions implemented after Russia’s 2014 invasion of Crimea. The U.S., EU, and U.K. have all stated their intention to target Russian banks, individuals, and investments. German Chancellor Olaf Scholz paused the Nord Stream 2 project, which is a natural gas pipeline coming directly from Russia into Germany. This is a major decision for Germany since it receives roughly 55% of its gas imports from Russia. President Biden also authorized the delivery of additional U.S. troops and weapons to help bolster the borders to the west of Ukraine. U.S. equity markets fell for the third straight session, led by the Russell 2000 (-1.45%) and DJIA (-1.42%).
Our fund-flows week wrapped up Wednesday, February 23, with the fourth straight session in the red from U.S. equity markets—Nasdaq (-2.57%), S&P 500 (-1.84%), Russell 2000 (-1.82%), and DJIA (-1.38%). As the equity markets struggle, oil, natural gas, wheat, and other commodity prices continue to increase. Up until this point, sanctions by the U.S. have not specifically targeted the energy sector, which if targeted, may cause a significant energy supply shock both here at home and in the international markets. In the late hours on Wednesday, we got confirmation of a Russian invasion into Ukraine of which Ukraine’s ambassador to the United Nations said, “It’s too late for de-escalation.”
Exchange-Traded Equity Funds
Exchange-traded equity funds recorded $2.9 billion in weekly net inflows, marking their third consecutive week of inflows. The macro-group posted a negative 5.06%—their worst weekly performance since March 18, 2020.
Growth/value large-cap ETFs (+$2.0 billion), international equity ETFs (+$1.8 billion), sector-other ETFs (+$989 million), and equity income funds ETFs (+$744 million) were the four largest equity ETF subgroups to post inflows this week. Growth/value large-cap ETFs have now posted three straight weeks reporting inflows and have moved their four-week flow moving average into positive territory for the first time in five weeks.
Sector-financial/banking ETFs (-$1.1 billion), sector-technology ETFs (-$781 million), sector-energy ETFs (-$720 million), and sector-healthcare/biotech ETFs (-$379 million) were the top flow detractors under the macro-group. Despite future rate increases which normally help financial companies, sector-financial/banking ETFs logged their largest weekly outflow in 12 weeks. The subgroup has only realized three weekly outflows over the past 12 weeks.
Over the past fund-flows week, the top two equity ETF flow attractors were SPDR S&P 500 ETF (SPY, +$1.4 billion) and SPDR Gold (GLD, +$605 million).
Meanwhile, the bottom two equity ETFs in terms of weekly outflows were Select Sector: Financial Sector SPDR (XLF, -$893 million) and iShares: ESG Aware MSCI USA ETF (ESGU, -$501 million).
Exchange-Traded Fixed Income Funds
Exchange-traded fixed income funds observed $1.5 billion in weekly net inflows—the macro-group’s second week of inflows in three. Fixed income ETFs reported a weekly return of positive 0.03% on average.
Government-Treasury ETFs (+$1.4 billion), corporate-investment grade ETFs (+$802 million), and international & global debt ETFs (+$251 million) were the only attractors of capital under fixed income ETFs. Government-Treasury ETFs have observed weekly inflows in five of the last six weeks as they returned positive performance for the first week in three (+0.38%, on average).
Corporate-high yield ETFs (-$494 million), flexible funds ETFs (-$383 million), and government-mortgage ETFs (-$29 million) witnessed the largest outflows under the fixed income ETF macro-group. Corporate-high yield ETFs have reported their seventh consecutive week of outflows while realizing their eighth straight week of negative performance. Flexible funds ETFs reported their largest weekly outflow in nearly one year and their first outflow in four weeks.
iShares: iBoxx $Investment Grade Corporates (LQD, +$883 million), iShares: 20+ Treasury Bond ETF (TLT, +$478 million), and iShares: 7-10 Treasury Bond ETF (IEF, +$343 million) attracted the largest amounts of weekly net new money for taxable fixed income ETFs.
On the other hand, iShares: Core US Aggregate Bond ETF (AGG, -$361 million), iShares: Broad USD Investment Grade Corporates ETFs (USIG, -$177 million), and Invesco Senior Loan ETF (BKLN, -$150 million) suffered the largest net weekly outflows.
Conventional Equity Funds
Conventional equity funds (ex-ETFs) witnessed weekly outflows (-$2.7 billion) for the third straight week. Conventional equity funds posted a weekly return of negative 5.47% on average, their worst weekly performance since March 18, 2020.
Growth/value large-cap funds (-$1.5 billion), growth/value small-cap funds (-$766 million), growth/value aggressive funds (-$481 million), and global equity (-$458 million) were the largest subgroup outflows under conventional equity funds. Both growth/value large-cap and growth/value small-cap conventional funds have suffered three consecutive weeks of outflows.
International equity (+$772 million), sector-other (+$134 million), and gold and natural resources (+$35 million) conventional funds were the top subgroups in weekly inflows under this macro-group. Conventional international equity funds observed their tenth straight week of inflows despite realizing their worst-performing week (-4.44%) since March 18, 2020. The subgroup’s four-week moving average has remained above the $1.1 billion mark for seven straight weeks.
Conventional Fixed Income Funds
Conventional fixed income funds realized a weekly outflow of $3.1 billion—marking their fifth straight week of outflows. The subgroup reported a weekly performance of negative 0.93% on average—their third consecutive week with negative performance.
Corporate-investment grade (-$1.6 billion), corporate-high yield (-$502 million), government-Treasury & mortgage (-$345 million), and international & global debt (-$320 million) funds led the macro-group in outflows. Conventional corporate-investment grade funds have now suffered four weeks of outflows over the previous five. The subgroup has also posted eight weeks of negative performance in the last nine.
Flexible funds (+$233 million) was the only subgroup to witness weekly inflows under this macro-group. Conventional flexible funds have recorded eight weeks of inflows in the last nine while realizing a negative 1.60% over the past fund-flows week. This subgroup has amassed 14 consecutive monthly inflows.
Municipal bond funds (ex-ETFs) returned a positive 0.20% over the fund-flows week—their first weekly positive performance over the last seven weeks. The subgroup experienced $1.4 billion in outflows, marking their seventh week in a row of outflows. The subgroup has logged four straight weeks with a four-week moving outflow average of greater than $1.1 billion for the first time since the start of the pandemic. Conventional municipal bond funds only recorded five total weeks of net outflows in all of 2021.
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