by Jack Fischer.
During Refinitiv Lipper’s fund-flows week ended July 27, 2022, investors were overall net purchasers of fund assets (including both conventional funds and ETFs) for the third week in four, adding a net $6.1 billion.
Money market funds (+$6.0 billion), equity funds (+$372 million), and tax-exempt bond funds (+$237 million) logged weekly inflows, while taxable bond funds (-$537 million) suffered outflows. Money market funds have reported four straight weeks of inflows.
At the close of Refinitiv Lipper’s fund-flows week, U.S. broad-based equity indices traded positive for the fourth week in five—S&P 500 (+1.61%), Nasdaq (+1.13%), Russell 2000 (+1.12%), and DJIA (+1.01%).
The Bloomberg Municipal Bond Total Return Index (+0.65%) ended the week in plus-side territory for the sixth straight week. The Bloomberg U.S. Aggregate Bond Total Return Index appreciated 1.50%, marking its largest weekly gain in 120 weeks.
Overseas broad market indices traded mixed last week—FTSE 100 (+1.45%), Nikkei 225 (+0.72%), Shanghai Composite (-0.92%), and Dax 30 (-1.76%).
The 10-two Treasury yield spread fell over the week to negative 0.24, marking the seventeenth straight trading session with an inverted yield curve. As of Wednesday, July 27, investors will receive greater compensation for investing in the two-year Treasury note (2.97%) than the 10-year (2.73%).
According to Freddie Mac, the 30-year fixed-rate average (FRM) decreased for the first week in three, from 5.54% to 5.30%. Looking at last week’s mortgage applications, the Mortgage Bankers Association (MBA) reported that applications declined for the fourth week in a row to the lowest level since February 2000. Both the United States Dollar Index (DXY, -0.58 %) and the VIX (-2.49%) decreased slightly over the course of the week.
Our fund-flows week kicked off Thursday, July 21, with U.S. broad-based equity markets gaining for the third straight day—Nasdaq (+1.36%), S&P 500 (+0.99%), DJIA (+0.51%), and Russell 2000 (+0.48%). Buying ensued in the Treasury markets causing yields to fall across the board by more than 3.00%. The European Central Bank, which is responsible for monetary policy within the eurozone, raised interest rates for the first time in 11 years. The ECB lifted rates by a more-than-expected 50 basis points (bps). ECB President Christine Lagarde said,
“We expect inflation to remain undesirably high for some time.”
Hoping to ease the price pains and global food shortage, the United Nations (UN) helped broker an agreement between Russia and Ukraine, allowing Ukraine to resume exporting wheat and corn.
U.S. equity indices ended the calendar week on July 22 in the red. Reports from the S&P Global Flash Composite Purchasing Managers’ Output Index (PMI) showed a contraction in U.S. business activity, marking the first time in more than two years. The National Association of Realtors (NAR) also reported that sales of previously owned homes fell 5.4% month-over-month in June to the fewest total since June 2020.
On Monday, July 25, markets were relatively quiet ahead of the Federal Reserve’s July meeting and GDP announcements. Equity markets traded mixed—Russell 2000 (+0.60%), DJIA (+0.28%), S&P 500 (+0.13%), and Nasdaq (-0.43%). Treasury markets witnessed a selloff and saw yields rise slightly, led by the 30-year yield (+1.80%). The Chicago Federal Reserve reported its National Activity Index (CFNAI), which is a monthly index that gauges overall economic activity and related inflationary pressures. The June CFNAI came in at negative 0.19, which was unchanged from the previous month, continuing to signal below-average growth.
On Tuesday, July 26, the International Monetary Fund (IMF) lowered its global economic growth forecast for the remainder of the year, as well as next year. The IMF now forecasts a 3.2% (vs. 3.6%) expansion in 2022 and a 2.9% (vs. 3.6%) expansion in 2023. The IMF predicted the U.S. growth for the next two years to be 2.3% and 1.0%, respectively. The world economic outlook also included updated estimates for inflation which were 6.6% for advanced economies and 9.5% for emerging and developed ones. In the U.S., Walmart (WMT) shook up the markets as shares fell by nearly 8% on a profit warning, an indication that retail consumers are cutting back on spending while corporations deal with both food and fuel shortages. Equity markets tumbled, led by Nasdaq (-1.87%) and S&P 500 (-1.15%).
Our fund-flows week wrapped up Wednesday, July 27, with the Federal Reserve acting as expected, increasing the fed funds rate by another 75 bps. This marks the second straight month the central bank raised rates by at least three-quarters of a percent—it raised rates 100 bps last month for the first time since 1994. The benchmark lending rate now stands at 2.25% to 2.50%, the highest upper limit since June 2019. Powell continues to maintain a stance of necessary monetary tightening even if Fed actions continue to cause slower economic growth, a successful stance taken by former Fed Chair Paul Volcker in the early 1980s. U.S. equity markets reacted positively to the news—the Nasdaq (+4.06%) locked in its largest single-day gain in more than one year.
Exchange-traded equity funds recorded $5.5 billion in weekly net inflows, marking their first weekly inflows in six. The macro-group posted a positive return of 1.51% on the week. The macro-group’s four-week moving flow average has remained negative for the fifth straight week.
Growth/value-large cap ETFs (+$5.7 billion), equity income ETFs (+$1.6 billion), and growth/value-small cap ETFs (+$1.5 billion) were the largest equity ETF subgroups to post inflows this week. Growth/value-large cap ETFs have logged four weeks of positive performance in five as they posted their largest weekly intake in five weeks. Equity income ETFs have attracted net inflows in 47 out of the last 50 weeks.
Sector-other ETFs (-$1.7 billion), sector-energy ETFs (-$1.0 billion), sector-utilities ETFs (-$594 million), sector-technology ETFs (-$561 million), and sector-financial/banking (-$304 million) were the top flow detractors under the macro-group. Sector-other ETFs reported a positive 0.92% on the week as they suffered their sixth straight weekly outflow, all greater than $1.4 billion. Sector-energy ETFs observed their sixth weekly outflow in seven despite three consecutive weeks of plus-side performance.
Over the past fund-flows week, the top three equity ETF flow attractors were SPDR S&P 500 ETF (SPY, +$3.8 billion), iShares: Core S&P Small-Cap ETF (IJR, +$2.0 billion), and iShares: MSCI EAFE Growth ETF (EFG, +$1.3 billion).
Meanwhile, the bottom three equity ETFs in terms of weekly outflows were iShares: S&P Small-Cap 600 Value (IJS, -$1.2 billion), Invesco QQQ Trust 1 (QQQ, -$829 million), and iShares: US Energy ETF (IYE, -$625 million).
Exchange-traded fixed income funds observed a net $3.2 billion weekly inflow—the macro-group’s thirteenth inflows in 15 weeks. Fixed income ETFs reported a weekly return of positive 1.02% on average.
Corporate-high yield ETFs (+$2.8 billion), corporate-investment grade ETFs (+$1.8 billion), and flexible funds ETFs (+$670 million) were the largest weekly inflows under taxable fixed income ETFs. Corporate-high yield ETFs recorded a positive weekly performance of 0.90% as they logged their largest weekly inflows since November 2020.
Government-Treasury (-$2.4 billion) and government-mortgage ETFs (-$40 million) were the only subgroups to report outflows under taxable fixed income ETFs. Government-Treasury ETFs realized their first weekly outflow in six weeks. This was also their largest outflow since November 2020.
Municipal bond ETFs reported a $709 million inflow over the week, marking their fifth weekly inflows over the past six weeks. The subgroup realized a positive 0.49% on average, their sixth straight week of performance in the black.
iShares: U.S. Treasury Bond ETF (GOVT, +$1.5 billion) and iShares: iBoxx $High Yield Corporates ETF (HYG, +$990 million) attracted the largest amounts of weekly net new money for taxable fixed income ETFs.
On the other hand, iShares: 7-10 Treasury Bond ETF (IEF, -$2.1 billion) and SPDR Portfolio Intermediate Term Treasury ETF (SPTI, -$1.8 billion) suffered the largest weekly outflows under all taxable fixed income ETFs.
Conventional equity funds (ex-ETFs) witnessed weekly outflows (-$5.2 billion) for the twenty-fifth straight week. Conventional equity funds posted a weekly return of positive 1.49%, their second consecutive week of plus-side performance.
International equity (-$2.4 billion), growth/value-large cap funds (-$1.4 billion), growth/value-aggressive cap funds (-$448 million), and global equity funds (-$284 million) were the largest subgroup outflows under conventional equity funds. International equity conventional funds have suffered 15 straight weeks of outflows despite back-to-back weeks of positive performance. Their four-week outflow moving average has remained greater than $1.3 billion for 12 straight weeks.
The only conventional equity subgroups to record more than $2 million in inflows were sector-other funds (+$40 million) and convertible & preferreds funds (+$18 million). Conventional sector-other funds realized a positive 2.18% on the week as they ended a two-week skid of outflows.
Conventional taxable-fixed income funds realized weekly outflows of $3.8 billion—marking their twenty-seventh straight week of outflows. The subgroup has produced a negative four-week flow moving average of at least $1.3 billion in 26 consecutive weeks. The macro-group recorded a positive 1.24% on average—their second straight week in the black.
Corporate-investment grade (-$4.2 billion), international & global debt conventional funds (-$1.3 billion), and government-Treasury & mortgage funds led the macro-group in outflows. Conventional corporate-investment grade funds have now suffered 24 consecutive weeks of outflows, each of which has been larger than $1.5 billion. The subgroup has posted a positive weekly performance of 1.12%, the fifth week of plus-side performance in the last six. International & global debt conventional funds have reported 29 straight weeks of outflows and their largest four-week outflow moving average since April 2020.
Corporate-high yield (+$2.0 billion), flexible funds (+$1.7 billion), and government-Treasury (+$75 million) were the only taxable fixed income conventional fund subgroups to attract weekly inflows. Conventional corporate-high yield funds realized a positive 0.97% over the week, marking their fourth straight week of positive performance. The subgroup also recorded its largest single-week intake since June 2020.
Municipal bond conventional funds (ex-ETFs) returned a positive 0.58% over the fund-flows week—their sixth straight positive performing week. The subgroup experienced $472 million in outflows, marking its twenty-seventh week of outflows in 30. The subgroup has logged 27 straight weeks with a negative four-week moving flow average. Conventional municipal bond funds recorded only five total weeks of net outflows in all of 2021.
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