July 7, 2022

U.S. Weekly FundFlows Insight Report: Government-Treasury ETFs Break Four-Week Moving Average Record

by Jack Fischer.

During Refinitiv Lipper’s fund-flows week ended July 6, 2022, investors were overall net purchasers of fund assets (including both conventional funds and ETFs) for the first week in four, adding a net $12.1 billion.

Money market funds (+$20.41) logged the only weekly inflows, their first weekly inflow in four. Equity funds (-$7.9 billion), tax-exempt bond funds (-$313 million), and taxable bond funds (-$111 million) all suffered outflows. Excluding money market funds, equity and fixed income funds have seen five straight weeks of outflows.

Index Performance

At the close of Refinitiv Lipper’s fund-flows week, U.S. broad-based equity indices traded positive for the second week straight—Nasdaq (+1.65%), S&P 500 (+0.69%), Russell 2000 (+0.48%), and DJIA (+0.03%). This was the Nasdaq’s best performing week since the last fund-flows week in May.

Fixed income indices traded positive for the third consecutive week with the Bloomberg Municipal Bond Total Return Index and the Bloomberg U.S. Aggregate Bond Total Return Index rising 1.41% and 0.77%, respectively.

Overseas broad market indices posted sub-zero performance after trading mixed last week—Dax 30 (-5.77%), FTSE 100 (-4.50%), Nikkei 225 (-1.76%), and Shanghai Composite (-0.28%). The Dax 30 has depreciated in four straight fund-flow weeks.

Rates/Yields

The 10-two Treasury yield spread fell over the week to negative 0.05, signaling an inverted yield curve which typically acts as a leading indicator for a recessionary period. As of Thursday, July 6, investors will receive greater compensation for investing in the two-year Treasury note (2.96%) than the 10-year (2.91%).

According to Freddie Mac, the 30-year fixed-rate average (FRM) decreased by its largest weekly margin since December 2008—from 5.70% to 5.30%. This is the second week in a row where the 30-year FRM reported a decrease. The United States Dollar Index (DXY, +1.89 %) appreciated as the VIX (-5.27%) decreased over the course of the week.

Market Recap

Our fund-flows week kicked off Thursday, June 30, with U.S. broad-based equity markets falling for the fourth straight day—Nasdaq (-1.33%), S&P 500 (-0.88%), DJIA (-0.82%), and Russell 2000 (-0.66%). The final trading day of the month marked the worst-performing start to a calendar year on record for the Nasdaq, and the worst since 1970 for the S&P 500—for more on quarterly equity fund performance: Equity Funds Suffer Largest Quarterly Decline in Two Years. The U.S. Bureau of Economic Analysis posted its Personal Consumption Expenditures (PCE) May report showing that prices increased by 0.6%, an acceleration from April’s 0.2% increase. The 12-month PCE figure came in at 6.3%. The Federal Reserve’s preferred gauge of inflation, core-PCE (excluding energy and food), was only up 4.7% from last year, decelerating from April’s 4.9% annual increase. Crude oil prices fell almost 4.0% as WTI crude ended below $106 per barrel. The price of crude oil has increased 45% in the first half of the year.

U.S. equity indices ended the calendar week on July 1 with the Commerce Department reporting construction spending fell 0.8% while the ISM’s June Manufacturing PMI recorded its two-year low (52.7). While the economy appears to be slowing, Federal Reserve Chair Jerome Powell has reiterated that the larger mistake policymakers could make “would be to fail to restore price stability.” The Fed’s stance has shifted from transitory inflation to creating a soft landing to price stability by any means necessary. U.S. equity markets snapped a four-day skid, led by the Russell 2000 (+1.16%) and S&P 500 (+1.06%). Both the two- and 10-year Treasury yields fell on the day (-2.80% and -2.35%, respectively).

On Monday, July 4, U.S. markets were closed in recognition of Independence Day.

On Tuesday, July 5, oil prices dropped below $100 per barrel for the first time in two months as recessionary fears push down forecasted consumer demand. Also helping subdue commodity prices is a strong U.S. dollar, which touched a 20-year high against the euro. The CoreLogic Home Price Index reported home prices were 20.2% higher than 12 months ago as home prices appreciated for the one hundred and twenty fourth consecutive month. The Nasdaq (+1.75%), Russell 2000 (+0.79%), and S&P 500 (+0.16%) logged daily gains, while the DJIA (-0.42%) depreciated. Investors continue to pile into safe-haven assets with the 10-year Treasury yield falling another 3.20%, marking the fourth straight trading session of more than 2.0% dips.

Our fund-flows week wrapped up Wednesday, July 6, with a selloff in Treasuries and small gains in equities as investors reacted to the release of the Federal Reserve’s June meeting minutes. In the current market environment, it would appear that equity market participants react positively to hard rhetoric by the Fed to attack inflation. The minutes showed that Fed members were in favor and likely to hike rates by 50 to 75 basis points (bps) during their July meeting. Just last month policymakers boosted rates by 75 bps—marking the largest increase since 1994. Fed minutes also added, “(The Fed) recognized the possibility that an even more restrictive stance could be appropriate if elevated inflation pressures were to persist.” The S&P 500 (+0.36%) led broad-based U.S. equity market gains, while the two-year Treasury yield increased by 5.15%, ending four straight days of decreases.

Exchange-Traded Equity Funds

Exchange-traded equity funds recorded $3.5 billion in weekly net outflows, marking their fourth weekly outflow in a row. The macro-group posted a negative return of 0.48% on the week. The macro-group’s four-week moving flow average surpassed negative $3.5 billion for the first time since July 2020.

Sector-other ETFs (-$3.7 billion), growth/value-large cap ETFs (-$1.6 billion), sector-energy ETFs (-$1.4 billion), and sector-financial/banking (-$1.1 billion) were the top flow detractors under the macro-group. Sector-other ETFs reported a negative 2.98% on the week as they logged their second-largest weekly outflow on record. Growth/value-large cap ETFs suffered only their third weekly outflow in 10 while realizing a positive 0.76% on average. Sector-energy ETFs also posted their second-largest weekly outflow to date.

Equity income ETFs (+$1.4 billion), sector-healthcare/biotech ETFs (+$1.1 billion), international equity ETFs (+$571 million), and sector-utilities ETFs were the only equity ETF subgroups to post inflows this week. Despite realizing a negative 0.12% on the week, equity income ETFs have only witnessed two weekly outflows this year.

Over the past fund-flows week, the top three equity ETF flow attractors were Select Sector: Utilities SPDR ETF (XLU, +$557 million), Select Sector: Healthcare SPDR ETF (XLV, +$519 million), and iShares: Core S&P 500 ETF (IVV, +$501 million).

Meanwhile, the bottom three equity ETFs in terms of weekly outflows were SPDR S&P 500 ETF (SPY, -$4.0 billion), SPDR Gold (GLD, -$1.6 billion), and Select Sector: Energy SPDR (XLE, -$826 million).

Exchange-Traded Fixed Income Funds

Exchange-traded fixed income funds observed a net $7.5 billion weekly inflow—the macro-group’s second consecutive week of inflows. Fixed income ETFs reported a weekly return of positive 0.35% on average. This inflow marks the largest weekly inflow by the macro-group since December 2021.

Government-Treasury ETFs (+$5.3 billion), corporate-high yield ETFs (+$1.5 billion), and flexible funds ETFs (+$392 million) were the largest weekly inflows under taxable fixed income ETFs. Government-Treasury ETFs has reported four straight weeks of inflows, all greater than $3.1 billion. The subgroup’s four-week flow moving average hit its highest level on record (+$4.4 billion).

Government-mortgage ETFs (-$40 million) and corporate-high quality ETFs (-$6 million) were the only subgroups to report outflows of more than $5 million under taxable fixed income ETFs. Government-mortgage ETFs realized a positive 0.81% on average while suffering their ninth weekly outflow in the last 10 weeks.

Municipal bond ETFs reported a $516 million inflow over the week, marking their third consecutive weekly inflow. The subgroup realized a positive 1.11% on average.

iShares: 7-10 Treasury Bond ETF (IEF, +$2.8 billion) and SPDR Portfolio Intermediate-Term Treasury ETF (SPTI, +$1.4 billion) attracted the largest amounts of weekly net new money for taxable fixed income ETFs.

On the other hand, iShares: Short Treasury Bond ETF (SHV, -$967 million) and SPDR Bloomberg 1-3 Month T-Bill (BIL, -$785 million) suffered the largest weekly outflows under all taxable fixed income ETFs.

Conventional Equity Funds

Conventional equity funds (ex-ETFs) witnessed weekly outflows (-$4.4 billion) for the twenty-second straight week. Conventional equity funds posted a weekly return of negative 0.32%, marking their third week of sub-zero performance in four.

Growth/value-large cap funds (-$2.4 billion), international equity (-$684 million), growth/value-aggressive cap funds (-$534 million), and growth/value-small cap funds (-$380 million) were the largest subgroup outflows under conventional equity funds. Growth/value-large cap funds have observed 14 weeks of outflows over the past 15, despite logging back-to-back weeks of plus-side performance. International equity conventional funds have suffered 12 straight weeks of outflows. The subgroup also suffered a negative 2.44% on the week.

The only conventional equity subgroups to record more than $1 million in inflows were equity income funds (+$113 million) and sector-utilities (+$23 million). Equity income funds realized a negative 0.22% on average as they celebrated their first weekly inflow in five weeks.

Conventional Fixed Income Funds

Conventional taxable-fixed income funds realized a weekly outflow of $7.6 billion—marking their twenty-fourth straight week of outflows. The subgroup has produced a negative four-week flow moving average of at least $1.3 billion in 23 consecutive weeks. The macro-group recorded a positive 0.19% on average—their second straight week in the black.

Corporate-investment grade (-$6.0 billion), corporate-high yield ($585 million), and international & global debt conventional funds (-$379 million) led the macro-group in outflows. Conventional corporate-investment grade funds have now suffered 21 consecutive weeks of outflows; each of which has been larger than $1.5 billion. The subgroup has posted a positive weekly performance of 0.50%, marking only the third consecutive week of plus-side performance. The subgroup’s four-week moving average of negative $5.4 billion is the lowest level since March 2020.

There were no subgroup weekly inflows under conventional taxable fixed income funds for the fourth straight week.

Municipal bond funds (ex-ETFs) returned a positive 1.60% over the fund-flows week—their third straight positive performing week. The subgroup experienced $828 million in outflows, marking its twenty-fifth week of outflows in 26. The subgroup has logged 23 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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