May 26, 2022

U.S. Weekly FundFlows Insight Report: Government-Treasury Funds Set Four-Week Moving Average Record, Averaging Inflows of $4.1 Billion

by Jack Fischer.

During Refinitiv Lipper’s fund-flows week ended May 25, 2022, investors were overall net purchasers of fund assets (including both conventional funds and ETFs) for the first week in four.

Both money market funds (+$42.1 billion) and equity funds (+$5.2 billion) reported weekly inflows, while tax-exempt bond funds (-$1.0 billion) and taxable bond funds (-$527 million) suffered outflows.

Index Performance

At the close of Refinitiv Lipper’s fund-flows week, U.S. broad-based equity indices traded positive— DJIA (+2.00%), S&P 500 (+1.40%), Russell 2000 (+1.37%), and Nasdaq (+0.15%).

Fixed income indices realized their first weekly gain in 11 weeks as both the Bloomberg Municipal Bond Total Return Index (+2.11%) and Bloomberg U.S. Aggregate Bond Total Return Index (+1.22%) appreciated on the week.

Overseas broad market indices traded positive as well—FTSE 100 (+2.22%), Shanghai Composite (+1.85%), and Dax 30 (+1.59%).

Rates/Yields

The 10-two Treasury yield spread rose over the week (+12.90%). Treasury yields along the yield curve decreased—two- (-6.19%), five- (-6.02%), 10- (-4.75%), and 30-year (-3.45%).

The Mortgage Bankers Association reported the 30-year fixed-rate average declined for the second consecutive week to 5.46%. Both the United States Dollar Index (DXY, -1.69%) and VIX (-9.24%) decreased over the course of the week.

Market Recap

Our fund-flows week kicked off Thursday, May 19, with broad-based U.S. equity indices finishing the day in the red—DJIA (-0.75%), S&P 500 (-0.58%), and Nasdaq (-0.26%). The S&P 500 is now down 18.6% since reaching a record high in early January. We get closer and closer to the S&P 500 hitting bear territory for the first time since 2007. Sales of existing homes fell to their lowest level since the beginning of the COVID-19 pandemic. The National Association of Realtors (NAR) posted that sales were down 2.4% from March, putting existing sales at an annual rate of 5.61 million—the lowest 12-month rate since June 2020. The two- and three-year Treasury yields dropped 2.10% and 2.15%, respectively.

U.S. equity indices ended the week, May 20, quietly despite the S&P 500 hitting bear territory on the day—DJIA (+0.03%), S&P 500 (+0.01%), and Nasdaq (-0.30%). Fears of inflation, continued supply chain issues, and a decline in consumer confidence have engulfed the market. Paul Christopher, head of global market strategy at Wells Fargo said,

“Retailers are starting to reveal the impact of eroding consumer purchasing power…the consumer’s ability to spend is eroding at a faster pace than it was a month or two ago. We think that pace is going to accelerate further.”

Both Target and Walmart missed their earnings projections, causing panic in the marketplace. The measure of CEO Confidence released by a Confidence Board survey showed the figure reached its lowest point in three years. The 10- and 30-year Treasury yields fell 2.38% and 2.25%, respectively.

On Monday, May 23, President Christine Lagarde of the European Central Bank (ECB) suggested the bank is ready for a “rate lift-off” during their July meeting. The ECB has not raised interest rates since 2011—the current rate stands at negative 0.5% despite facing near 40-year high annual inflation rates. In the U.S., equity markets bounced back on the news President Joe Biden is considering easing some trade restrictions on goods from China—DJIA (+1.98%), S&P 500 (+1.86%), Nasdaq (+1.59%), and Russell 2000 (+1.10%). Economic optimism was also shared by JPMorgan Chase CFO Jeremy Barnum as he stated the current state of the U.S. economy is sound and while we have faced “strong storm clouds,” he said, “they may dissipate.”

On Tuesday, May 24, shares of Snap realized their worst single-day decline. Their comment that the macroeconomic environment deteriorated faster than anticipated caused other social media companies to decline on the day as well. Nasdaq fell 2.35% to close the session. The Census Bureau reported that new single-family houses fell 16.6% in March, marking the steepest month-over-month fall in nearly nine years. The median sales price for single-family homes increased 3.6% to a new record of $450,600. The average sales price also hit an all-time high at $570,300, a 9.1% monthly increase. Capital continued to flow into Treasuries as the two- and 10-year Treasury yields dropped 5.41% and 3.46%, respectively.

Our fund-flows week wrapped up Wednesday, May 25, with positive earnings data out of retailers Nordstrom and Dick’s Sporting Goods, alleviating some investor concerns from earlier in the week. The Federal Reserve published its latest meeting minutes which indicated that the policymakers are in favor of continued rate hikes over the next several gatherings. They also expressed that they may have to continue to raise rates past a “neutral” position until they reach a “restrictive” territory. U.S. equity markets reacted favorably—Russell 2000 (+1.95%), Nasdaq (+1.51%), S&P 500 (+0.95%), and DJIA (+0.60%).

Exchange-Traded Equity Funds

Exchange-traded equity funds recorded $13.8 billion in weekly net inflows, marking their fourth weekly inflow in a row and the largest intake in 11 weeks. The macro-group posted a positive return of 1.65% on the week.

Growth/value-large cap ETFs (+$9.6 billion), equity income funds ETFs (+$3.5 billion), and International Equity ETFs (+$2.2 billion) were the largest equity ETF subgroups to post inflows this week. Growth/value-large cap ETFs attracted their largest weekly inflow since the first week in February. The subgroup has logged three straight weekly inflows as they realized a positive 1.35% on the week. Equity income funds ETFs have put up 10 straight weeks of positive inflows, while International Equity ETFs logged eight weeks of plus-side flows in the last 10.

Sector-financial/banking ETFs (-$1.3 billion), growth/value-small cap ETFs (-$1.1 billion), and sector-energy ETFs (-$1.1 billion) were the top flow detractors under the macro-group. Sector-financial/banking ETFs suffered their fifth straight weekly outflow. The subgroup logged its highest monthly outflow total on record during April (-$7.6 billion). Growth/value-small cap ETFs had their first weekly outflow in four weeks. Sector-energy ETFs have now observed five consecutive weekly outflows and their largest since the end of the first quarter.

Over the past fund-flows week, the top three equity ETF flow attractors were SPDR S&P 500 ETF (SPY, +$6.9 billion), iShares: Core High Dividend (HDV, +$2.1 billion), and iShares: MSCI Emerging Markets Minimum Volatility (EEMV, +$2.0 billion).

Meanwhile, the bottom three equity ETFs in terms of weekly outflows were iShares: Core S&P Small-Cap (IJR, -$1.6 billion), iShares: GSCI Commodity Dynamic Roll Strategy (COMT, -$1.4 billion), and iShares: MSCI USA Value Factor (VLUE, -$1.1 billion).

Exchange-Traded Fixed Income Funds

Exchange-traded fixed income funds observed $7.0 billion in weekly net inflows—the macro-group’s sixth straight week of inflows. Fixed income ETFs reported a weekly return of positive 0.81% on average—the macro-group’s first week of plus-side performance in 12.

Government-Treasury ETFs (+$4.9 billion), corporate-investment grade ETFs (+$1.3 billion), and corporate-high yield ETFs (+$740 million) were the top attractors of capital under fixed income ETFs. Government-Treasury ETFs have witnessed seven straight weeks of net inflows and are on their way to a record monthly inflow in May.

International & global debt ETFs (-$84 million), government-mortgage ETFs (-$30 million), and government-Treasury & Mortgage ETFs (-$17 million) witnessed the largest outflows under the fixed income ETF macro-group. The ECB deciding to prepare for a “rate lift-off” has led to international & global debt ETFs snapping a seven-week inflow streak despite realizing a positive 1.35% on the week.

iShares: 20+ Treasury Bond ETF (TLT, +$1.5 billion) and iShares: TIPS Bond ETF (TIP, +$1.1 billion) attracted the largest amounts of weekly net new money for taxable fixed income ETFs.

On the other hand, iShares: Core 1-5 Year USD Bond (ISTB, -$255 million) and SPDR Blackstone Senior Loan (SRLN, -$220 million) suffered the largest net weekly outflows.

Conventional Equity Funds

Conventional equity funds (ex-ETFs) witnessed weekly outflows (-$8.6 billion) for the fifteenth straight week. Conventional equity funds posted a weekly return of positive 1.59%. This is the thirteenth straight week the macro-group has observed a four-week outflow moving average of more than $2.2 billion and is on pace to record its largest monthly outflow since December 2021.

International equity (-$3.7 billion), growth/value-large cap (-$1.9 billion), and global equity (-$870 million) were the largest subgroup outflows under conventional equity funds. International equity conventional funds have suffered six straight weeks of outflows, all greater than $1.4 billion. The subgroup is on pace for its largest monthly outflow since February 2021.

Sector-energy funds (+$52 million), equity income funds (+$47 million), and sector-utilities funds (+$20 million) were the only attractors of capital over this fund-flows week. Sector-energy has only reported one week of outflows over the past 10. The subgroup has realized strong gains in back-to-back weeks, 3.85% and 3.01%, respectively.

Conventional Fixed Income Funds

Conventional taxable-fixed income funds realized a weekly outflow of $7.6 billion—marking their eighteenth straight week of outflows. The subgroup has produced a negative four-week flow moving average of at least $1.3 billion in 17 consecutive weeks. Their current four-week flow moving average of negative $9.1 billion is the lowest level since March 2020. The macro-group recorded a positive 0.96% on average—their first week in three of plus-side performance.

Corporate-investment grade (-$3.0 billion), flexible funds (-$1.5 million), corporate-high yield (-$976 million), and international & global debt (-$630 million) led the macro-group in outflows. Conventional corporate-investment grade funds now suffered 15 consecutive weeks of outflows. The subgroup’s four-week outflow moving average of negative $5.3 billion is the lowest level since March 2020.

There were no conventional taxable-fixed income subgroups to report inflows.

Municipal bond funds (ex-ETFs) returned a positive 2.24% over the fund-flows week—their first positive weekly performance in 12. The subgroup experienced $2.8 billion in outflows, marking its twentieth consecutive week of outflows. The subgroup has logged 17 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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