by Jack Fischer.
During Refinitiv Lipper’s fund-flows week ended February 2, 2022, investors were overall net redeemers of fund assets (including both conventional funds and ETFs) for the third week in four, withdrawing a net $34.6 billion.
Money market funds (-$21.4 billion), equity funds (-$5.2 billion), taxable bond funds (-$5.1 billion), and tax-exempt bond funds (-$2.9 billion) all suffered outflows over the week.
At the close of Refinitiv Lipper’s fund-flows week, U.S. broad-based equity indices recorded positive weekly performance for the first week in five—NASDAQ (+6.46%), S&P 500 (+5.50%), DJIA (+4.28%), and Russell 2000 (+2.68%).
The Bloomberg Municipal Bond Total Return Index declined (-0.50%), while the Bloomberg U.S. Aggregate Bond Total Return Index reported a weekly gain (+0.37%).
Overseas broad market indices traded mixed. Shanghai Composite (-3.38%) ended the week down, as the FTSE 100 (+1.93%), Nikkei 225 (+1.87%), and DAX 30 (+1.13%) returned plus-side performance.
We are getting closer to an inverted yield curve as the Treasury yield curve continued to flatten over the week—the two- and three-year Treasury yields rose 5.96% and 1.86%, respectively. The five- (-2.74%), seven- (-3.89%), 10- (-4.33%), and 30-year yields (-3.32%) all fell on the week. The 10-two Treasury yield spread reached a one-year low falling another 19.21%.
As of January 27, the U.S. 30-year fixed-rate mortgage average declined for the first week in five to 3.55%, a 0.28% decrease from the prior week. Last week the rate on a 30-year fixed-rate conforming mortgage touched 3.72%, the largest level since the start of the pandemic. Both the United States Dollar Index (DXY, -0.47%) and VIX (-44.68%) dropped over the week.
Our fund-flows week kicked off Thursday, January 27, on a rough day for U.S. equity markets as market participants digested Wednesday’s Federal Open Market Committee (FOMC) statements. The Fed stated:
“With inflation well above 2% and a strong labor market, the Committee expects it will soon be appropriate to raise the target range for the federal funds rate. The Committee decided to continue to reduce the monthly pace of its net asset purchases, bringing them to an end in early March.”
The Russell 2000 (-2.29%), NASDAQ (-1.40%), S&P 500 (-0.54%), and DJIA (-0.02%) each declined on the day. The two-year Treasury yield spiked 9.26%. The Bureau of Economic Analysis (BEA) published its first estimate of fourth-quarter gross domestic product (GDP), which grew 5.7%—marking the fastest pace since 1984. Core personal consumption expenditure (PCE)—how much is spent on durable and non-durable goods—increased as well. The quarter-over-quarter gain (+4.9%) was the largest gain since 1983. The Department of Labor (DOL) unexpectedly showed a jump in initial jobless claims. The 286,000 first-time claims were the highest level since October 2021. The VIX ended the day at 30.52.
On Friday, January 28, equity markets ended a three-day skid. NASDAQ (+3.13%) reported its largest daily gain since March 2021, while the S&P 500 (+2.43%) realized its largest daily gain since June 2020. Treasury yields along the curve fell, led by the five-year dropping 2.47% on the day. Internationally, tensions grew between the U.S. and Russia as the U.S. put plans in motion to enact economic sanctions on Russia if Moscow were to invade Ukraine.
U.S. equity markets ended in the black for the second straight day to end the month of January on Monday. The NASDAQ (+3.41%), Russell 2000 (+3.04%), S&P 500 (+1.89%), and DJIA (+1.17%) each realized gains. Despite the strong daily performance in back-to-back sessions, the S&P 500 and NASDAQ logged their largest monthly declines since the pandemic started. Oil futures increased to more than $85 per barrel—the highest level in two months.
On Tuesday, February 1, the Institute for Supply Management (ISM) reported that the Manufacturing Purchasing Managers Index (PMI) fell to 57.6% in January—marking the lowest level since November 2020. ISM also published its price index rose to 76.1%—the twentieth straight month of gains. Both U.S. equity markets and Treasury yields rose on the day, with the small-cap focused Russell 2000 (+1.10%) and the 30-year yield (+1.24%) leading the way.
Our fund-flows week wrapped up Wednesday, with the S&P 500 (+0.94%), DJIA (+0.63%), and NASDAQ (+0.50%) each posting their fourth consecutive day of positive returns. Markets were powered by Alphabet’s better-than-expected earnings and its announcement of a 20-for-one stock split. Treasury yields fell on the day—two-year yield decreased 0.77%. ADP’s private payroll report detailed a 301,000-job cut by private employers—representing the first decline since December 2020. The report also showed that small businesses lost 144,000 jobs after posting a 204,000 gain in December.
Exchange-traded equity funds recorded $10.0 billion in weekly net outflows, marking their second time reporting outflows in three weeks. Despite posting their largest weekly performance (+4.33%) since November 2020, Equity ETFs suffered their largest outflows in 71 weeks.
Growth/value large-cap ETFs (-$9.4 billion), growth/value small-cap ETFs (-$1.5 billion), sector-technology ETFs (-$995 million), and growth/value-aggressive ETFs (-$905 million) were the four largest equity ETF subgroups to post outflows this week. Growth/value large-cap ETFs suffered their third straight week of outflows greater than $8 billion, causing their four-week moving average to hit its third lowest level of all time. The $9.4 billion in weekly outflows is the largest outflow since the first week of February last year. Growth/value large-cap ETFs, however, did realize their largest weekly gain (+4.87%) since April 2020.
Equity income funds ETFs (+$1.7 billion), international equity ETFs (+$1.4 billion), global equity ETFs (+$529 million), and sector-energy ETFs (+$509 million) were the top attractors of new money over the previous fund-flows week. Equity income ETFs have observed seven straight weeks of net inflows and five with flows greater than $1.1 billion. The subgroup logged a weekly performance of a positive 3.29%. Equity income ETFs are on pace to set their largest monthly inflows to date—January’s preliminary monthly inflow currently stands at $7.5 billion.
Over the past fund-flows week, the top three equity ETF flow attractors were iShares: Core S&P 500 (IVV, +$2.8 billion), Invesco QQQ Trust 1 (QQQ, +$2.6 billion), and Select Sector: Energy SPDR (XLE, +$818 million).
Meanwhile, the bottom three equity ETFs in terms of weekly outflows SPDR S&P 500 ETF (SPDR, -$15.8 billion), iShares: Russell 2000 ETF (IWM, -$1.1 billion), and iShares: MSCI USA Value Factor (VLUE, -$1.1 billion). Over this fund-flows week SPDR suffered its third-largest weekly outflow to date.
Exchange-traded fixed income funds suffered $1.1 billion in weekly net outflows—the macro-group’s third week of outflows in four. Fixed income ETFs reported a weekly return of positive 0.10% on average—the macro-group’s first week of positive performance in six.
Corporate-high yield ETFs (-$3.0 billion) and international & global debt ETFs (-$344 million) witnessed the largest outflows under the fixed income ETF macro-group. Corporate-high yield ETFs have reported their fourth consecutive week of outflows leading to their third largest four-week moving average outflow total. This week was the largest weekly outflow for the corporate-high yield ETFs subgroup since March 2020.
Corporate-investment grade ETFs (+$1.7 billion), government-Treasury ETFs (+$245 million), and flexible funds ETFs (+$231 million) were the top attractors of capital under fixed income ETFs. Corporate-investment grade ETFs have now witnessed five weeks of inflows in six as they realize a weekly gain of 0.22% on average.
iShares: Core Total USD Bond Market ETF (IUSB, +$1.7 billion) and SPDR Bloomberg 1-3 Month T-Bill ETF (BIL, +$1.4 billion) attracted the largest amounts of weekly net new money for taxable fixed income ETFs.
On the other hand, iShares: TIPS Bond ETF (TIP, -$1.6 billion) and iShares:7-10 Treasury Bond ETF (IEF, -$1.0 billion) suffered the largest net weekly outflows.
Conventional equity funds (ex-ETFs) were attractors of new funds for the second week in three (+$4.8 billion). Conventional equity funds posted a weekly return of positive 4.55%, on average, their first week of plus-side performance in three.
International equity (+$2.2 billion), growth/value large-cap (+$1.5 billion), and sector-other (+$485 million) funds were the top subgroups in weekly inflows under conventional equity funds. Conventional international equity funds observed their seventh straight week of inflows while realizing a positive 3.01% in weekly performance. The subgroup’s four-week moving average has remained above the $1.4 billion mark for four straight weeks. International equity funds are on pace to post their largest January intake since 2018.
Sector-technology funds (-$235 million), convertible & preferreds funds (-$86 million), and sector-healthcare/biotech funds (-$61 million) were the largest subgroup outflows under conventional equity funds. Conventional sector-technology funds suffered their fifth consecutive week of outflows, despite a positive 6.81% weekly performance—the largest weekly return since March 2020.
Conventional fixed income funds realized a weekly outflow of $3.9 billion—marking their second straight week of outflows. The subgroup reported a weekly performance of positive 0.97% on average.
Conventional corporate-investment grade (-$1.7 billion), corporate high-yield (-$1.0 billion), and international & global debt (-$507 million) led the macro-group in outflows. Conventional corporate-investment grade funds have logged back-to-back weeks of outflows greater than $1 billion. The subgroup is coming off their first monthly outflows (December, -$11.3 billion) in 20 months.
Conventional flexible funds (+$166 million) were the only subgroup to witness weekly inflows. The subgroup realized a positive weekly performance of 1.42% as they notched their sixth-straight weekly intake. Flexible funds are on pace to report their fourteenth straight month with inflows.
Municipal bond funds (ex-ETFs) returned negative 0.26% over the fund-flows week. The subgroup experienced $3.0 billion in outflows, marking their fourth week in a row of outflows and the largest total since March 2020. Conventional municipal bond funds only recorded five total weeks of net outflows in 2021.
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