by Jack Fischer.
During Refinitiv Lipper’s fund-flows week ended March 16, 2022, investors were overall net redeemers of fund assets (including both conventional funds and ETFs) for the second straight week, removing a net $28.1 billion from the market.
Money market funds (-$19.1 billion), taxable bond funds (-$3.8 billion), equity funds (-$3.1 billion), and tax-exempt bonds (-$2.1 billion) all suffered weekly outflows.
At the close of Refinitiv Lipper’s fund-flows week, U.S. broad-based equity indices recorded positive weekly performance—DJIA (+2.33%), S&P 500 (+1.87%), Nasdaq (+1.37%), and Russell 2000 (+0.72%). The DJIA logged its largest weekly performance since the last week of January.
Fixed income indices struggled, with both the Bloomberg U.S. Aggregate Bond Index (-1.26%) and Bloomberg Municipal Bond Index (-1.27%) realizing negative weekly performance. The last time the Bloomberg Aggregate Bond Index had a weekly fall this large was the fund-flows week ended March 18, 2020—nearly two years ago.
Overseas broad market indices traded mixed—the DAX 30 (+3.79%), Nikkei 225 (+1.87%), and FTSE 100 (+0.94%) were all up, while the Shanghai Composite (-3.10%) was down on the week. The Shanghai Composite has reported three straight weeks of sub-zero performance.
Here we have it, the beginning of a rate hiking cycle, and the yield curve is already essentially flat. The two- (+17.34%), three- (+17.05%), five- (+16.81%), seven- (+15.15%), and 10- (+12.27%) year all increased by double-digit percentage points over the week. The 10-two Treasury yield spread fell once again (-19.26%) and is down 46.96% from the start of the month. We are getting extremely close to an inverted 10-two curve, which historically acts as a forward-looking indicator of a recession.
As of March 10, the U.S. 30-year fixed-rate mortgage average rose to 3.85%—a 2.39% increase from the prior week. United States Dollar Index (DXY, +0.66%) increased while the VIX (-21.67%%) decreased over the week.
Our fund-flows week kicked off Thursday, March 10, with the release of the February Consumer Price Index (CPI) that showed a 7.9% increase from last year—the largest annual jump since January 1982. The Federal Reserve’s preferred inflation indicator, Core-CPI (excluding energy and food), also spiked (+6.4% year over year). Travel site AAA announced that the national average of regular gas hit a record $4.32. Russia, looking to combat foreign economic sanctions against their country, imposed new export bans on more than 200 types of goods throughout the rest of the year. Yields rose (10-year Treasury yield +3.13%) as equity markets fell on the day, led by the tech-heavy Nasdaq (-0.95%).
On Friday, March 11, broad-based U.S. equity markets fell for the second straight day as U.S. consumer sentiment hit its lowest level in more than 10 years—Nasdaq (-2.18%), Russell 2000 (-1.59%), S&P 500 (-1.30%), and DJIA (-0.69%). Sanctions against Russia grew ahead of the weekend as the European Union suspended the country’s privileged trade status and announced plans to wean off Russian energy within the next five years.
On Monday, March 14, the London Metal Exchange (LME) had to halt trading in nickel for the second time in as many weeks as the price of the commodity experienced extreme price volatility. The price increase has been attributed to a combination of economic factors including Russia’s invasion of Ukraine mixed with a Chinese firm’s massive short position. This short squeeze pressure has been highlighted previously with investments surrounding silver, GameStop, and AMC. An outbreak of COVID-19 cases in China and no progress in the Ukrainian war led to U.S. equity markets falling for the third straight day—Nasdaq (-2.04%) led the way for the third consecutive session. Yields along the curve rose in advance of the Fed’s meeting where it is expected the Fed will kick off its increase of interest rates.
On Tuesday, March 15, U.S. equity markets snapped a three-day skid as the Nasdaq (+2.92%), S&P 500 (+2.14%), DJIA (+1.82%), and Russell 2000 (+1.40%) all appreciated on the day. Oil futures dropped 7% and are down more than 25% from recent highs. China is facing new coronavirus cases of more than 5,000 per day as 45 million people are reported to be under lockdown. In eastern Europe, Russia’s continuing aggression against Ukraine is leading to a possible default designation as they face an interest payment of $117 million on two dollar-denominated bonds.
Our fund-flows week wrapped up Wednesday, March 16, with the Federal Reserve announcing an increase in the target range for the federal funds rate (+0.25%). The increase marks the first time the central bank raised rates since 2018. The Fed also signaled six more increases this year and three more increases in 2023 as it looks to stabilize price levels. Bond yields increased after the Fed’s decision; the 10-year Treasury yield move over 2.18% for the first time since 2019. Equity markets reacted positively to the news of peace talks between Russia and Ukraine advancing—the Nasdaq (+3.77%) increased on the day.
Exchange-traded equity funds recorded $3.2 billion in weekly net inflows, marking their sixth consecutive week of inflows. The macro-group posted a positive 1.20% on the week.
Growth/value large-cap ETFs (+$3.1 billion), sector-healthcare/biotech ETFs (+$885 million), and growth/value-small cap ETFs (+$786 million) were the largest equity ETF subgroups to post inflows this week. Growth/value large-cap ETFs reported their sixth straight week of positive net flows as they logged a positive 1.84% on average.
Sector-technology ETFs (-$1.2 billion), sector-real estate ETFs (-$641 million), and equity income ETFs (-$443 million) were the top flow detractors under the macro-group. A rising rate environment hurts growth issues which have led to sector-technology posting their first weekly outflow this month and largest this year. Equity income ETFs suffered their first weekly outflow in 13 weeks.
Over the past fund-flows week, the top two equity ETF flow attractors were iShares: Core S&P 500 (IVV, +$4.0 billion) and Invesco S&P 500 Equal Weight (RSP, +$2.0 billion).
Meanwhile, the bottom two equity ETFs in terms of weekly outflows were SPDR S&P 500 ETF (SPY, -$5.4 billion) and Schwab U.S. Dividend Equity ETF (SCHD, -$1.3 billion).
Exchange-traded fixed income funds observed $2.3 billion in weekly net inflows—the macro-group’s fourth consecutive week of inflows. Fixed income ETFs reported a weekly return of negative 0.98% on average—the macro-group’s worst weekly performance since its all-time low was set back in March 2020.
Government-Treasury ETFs (+$2.4 billion), corporate-investment grade ETFs (+$773 million), and corporate-high quality ETFs (+$232 million) were the top attractors of capital under fixed income ETFs. Government-Treasury ETFs have observed weekly inflows in four straight weeks. Despite realizing negative performance on the week (-1.29%), the subgroup has posted their largest four-week moving average since March 2020.
Corporate-high yield ETFs (-$761 million), flexible funds ETFs (-$268 million), government mortgage ETFs (-$177 million), and balanced funds ETFs (-$28 million) witnessed the only outflows under the fixed income ETF macro-group. Corporate-high yield ETFs observed their ninth week of outflows over the past 10.
iShares: 20+ Treasury Bond ETF (TLT, +$942 million), iShares: iBoxx $Investment Grade Corporates ETF (LQD, +$875 million), and SPDR Bloomberg 1-3 Month T-Bill ETF (BIL, +$526 million) attracted the largest amounts of weekly net new money for taxable fixed income ETFs.
On the other hand, SPDR Bloomberg High Yield Bond ETF (JNK, -$466 million), iShares: iBoxx $High Yield Corporates ETFs (HYG, -$228 million), and iShares: 1-5 Investment Grade Corporate Bond ETF (IGSB, -$181 million) suffered the largest net weekly outflows.
Conventional equity funds (ex-ETFs) witnessed weekly outflows (-$6.3 billion) for the sixth straight week. Conventional equity funds posted a weekly return of a positive 1.73% on average.
Growth/value large-cap funds (-$2.9 billion), international equity funds (-$1.3 billion), and global equity (-$669 million) were the largest subgroup outflows under conventional equity funds. Both growth/value large-cap and global equity funds have suffered six straight weeks of outflows.
Gold & natural resources (+$23 million) and sector-utilities (+$17 million) conventional funds were the only subgroups to record weekly inflows. This subgroup has observed three straight weekly inflows for the first time since June 2021. Gold & natural resources conventional funds realized a negative 3.13% on the week, marking its lowest weekly return in seven weeks. The subgroup has logged five straight weeks of inflows and eight in their last 10.
Conventional fixed income funds realized a weekly outflow of $6.1 billion—marking their eighth straight week of outflows. The subgroup has recorded their lowest four-week flow moving average since April 2020 while suffering a weekly performance of negative 0.51% on average—their second straight week of sub-zero performance.
Corporate-investment grade (-$3.9 billion), corporate-high yield (-$889 million), and international & global debt (-$526 million) funds led the macro-group in outflows. Conventional corporate-investment grade funds have now suffered four consecutive weeks of outflows. The subgroup witnessed its lowest-performing week (-0.97%) in a year.
The only subgroup to attract new money under fixed income conventional funds was government-Treasury (+$297 million). This subgroup has logged two straight weeks of inflows despite realizing negative 1.55% on average.
Municipal bond funds (ex-ETFs) returned a negative 1.23% over the fund-flows week—their second negative weekly performance in a row. The subgroup experienced $2.4 billion in outflows, marking their tenth week in a row of outflows. The subgroup has logged seven straight weeks with a four-week moving outflow average of greater than $1.1 billion. Conventional municipal bond funds only recorded five total weeks of net outflows in all of 2021.
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