During Refinitiv Lipper’s fund-flows week ended August 3, 2022, investors were overall net redeemers of fund assets (including both conventional funds and ETFs) for the second week in three, removing a net $16.7 billion.
Both money market funds (-$14.1 billion) and equity funds (-$7.5 billion) suffered outflows, while taxable bond funds (+$3.9 billion) and tax-exempt bond funds (+$1.1 billion) attracted net new capital. Money market funds reported their first outflows in five weeks.
Index Performance
At the close of Refinitiv Lipper’s fund-flows week, U.S. broad-based equity indices traded positive for the fifth week in six—S&P 500 (+3.27%), Nasdaq (+5.28%) Russell 2000 (+3.28%), and DJIA (+1.91%).
The Bloomberg Municipal Bond Total Return Index (+0.67%) ended the week in plus-side territory for the seventh straight week. The Bloomberg U.S. Aggregate Bond Total Return Index appreciated 0.53%, marking its sixth positive weekly return in seven.
Overseas broad market indices traded positive last week—FTSE 100 (+2.03%), Nikkei 225 (+2.25%), and Dax 30 (+3.30%).
Rates/Yields
The 10-two Treasury yield spread fell over the week to negative 0.36, marking the twenty-second straight trading session with an inverted yield curve and the lowest spread since 2000. As of Thursday, July 27, investors will receive greater compensation for investing in the two-year Treasury note (3.11%%) than the 10-year (2.75%).
According to Freddie Mac, the 30-year fixed-rate average (FRM) decreased for the second straight week, from 5.30% to 4.99%. The United States Dollar Index (DXY, +0.05 %) was flat, while the VIX (-5.88%) decreased over the course of the week.
Market Recap
Our fund-flows week kicked off Thursday, July 28, with the U.S. gross domestic product (GDP) dropping by an unexpected 0.9% annualized rate, marking the second straight quarter of economic contractions. The term of the week has been “recession,” which has historically been technically defined as back-to-back quarters of negative growth in the annualized GDP rate. Some market participants, such as Federal Reserve Chair Jerome Powell, do not believe we are currently in a recession, saying:
“There are too many areas where the economy (is) performing too well…It’s no surprise that the economy is slowing down as the Federal Reserve acts to bring down inflation, but even as we face historic global challenges, we are on the right path, and we will come through this transition stronger and more secure.”
Others, such as many technology companies, are cutting staff in preparation for what they expect to be more turbulent and tighter times ahead. Equity markets still moved upward on the news, led by the Russell 2000 (+1.34%) and S&P 500 (+1.21%). Treasury yields tumbled as investors bought up “risk-free” issues—two- and 10-year Treasury yields fell 3.20% and 1.87%, respectively.
U.S. equity indices ended the calendar week on July 29 on a high note—S&P 500 (+1.42%), Nasdaq (+1.88%), DJIA (+0.97%), and Russell 2000 (+0.65%)—on the news that Chevron (CVX) and ExxonMobil (XOM) logged record quarterly profits, one day after Shell (SHEL) also reported a record profit. Sticking to natural gas, Russia announced it will cut back even more in its delivery of gas via the Nord Stream 1 pipeline—now to 20% capacity. The Department of Commerce released its Personal Consumption Expenditures (PCE) index which showed a 12-month increase of 6.8% and a month-over-month gain of 1%. The annual increase was the largest since January 1982. Core-PCE, excluding volatile food and energy prices, was up 4.8% from last year and 0.6% from May, tying April 2021 for the largest hike since 2001.
On Monday, August 1, the first ship carrying grain and corn from Ukraine left the seaport under the recently signed agreement between Russia and Ukraine which was brokered by the United Nations. Prices for the commodities fell on the day. Equity markets ended their three-day winning streak—S&P 500 (-0.28%), Nasdaq (-0.18%), DJIA (-0.14%), and Russell (-0.10%). The two-year Treasury yield rose 0.41% as the rest of the curve fell on the day.
On Tuesday, August 2, U.S. House of Representatives Speaker Nancy Pelosi took a surprise trip to Taiwan. In what will certainly be viewed as a provocation by China, it was the first visit to Taiwan by a high-ranking U.S. official since Newt Gingrich in 1997. On the home front, members of the Federal Open Market Committee (FOMC) hinted that the Fed will continue to aggressively raise rates if inflation does not slow. San Francisco Federal Reserve Bank President Mary Daly said that the Fed is “nowhere near done,” while adding that there are a “number of people who can’t afford this week what they paid for with ease six months ago.” Equity markets fell for the second straight session, the DJIA (-1.23%) and S&P 500 (-0.67%) being the biggest losers.
Our fund-flows week wrapped up Wednesday, August 3, with a few economic indicators being reported. The Mortgage Bankers Associations published that mortgage applications increased 1.2% from the prior week. The Purchasing Managers’ Index (PMI) showed that five of the seven U.S. sectors slowed in July—only Industrials and Technology signaled higher output—as Financials and Healthcare suffered the largest downturns. The U.S. Census Bureau announced that both new orders (+1.9%) and shipments of manufactured durables goods (+0.4%) increased in June. New orders have seen monthly increases in eight of the last nine months, while shipments have reported increases in 13 of the previous 14.
Exchange-Traded Equity Funds
Exchange-traded equity funds recorded $527 million in weekly net outflows, marking their seventh weekly outflow in eight. The macro-group posted a positive return of 2.66% on the week, their third straight week of plus side returns.
Growth/value-large cap ETFs (-$4.7 billion), convertible & preferreds ETFs (-$76 million), and sector-utilities ETFs (-$63 million) were the top flow detractors under the macro-group. Despite growth/value-large cap ETFs recording three consecutive weeks of plus-side performance, the subgroup has suffered its largest outflows in nearly two months.
Growth/value-small cap ETFs (+$1.3 billion), sector-other ETFs (+$702 million), sector-financial/banking ETFs (+$555 million), and sector-energy ETFs (+$479 million) were the largest equity ETF subgroups to post inflows this week. Growth/value-small cap ETFs have logged two straight weeks of inflows for the first time since May. This subgroup has also realized three straight weeks of weekly gains.
Over the past fund-flows week, the top three equity ETF flow attractors were Select Sector: Technology SPDR (XLK, +$785 million), Select Sector: Consumer Discretionary SPDR (XLY, +$641 million), and Invesco S&P 500 Low Volatility (SPLV, +$618 million).
Meanwhile, the bottom three equity ETFs in terms of weekly outflows were SPDR S&P 500 (SPY, -$5.9 billion), Invesco S&P 500 High Dividend Low Volatility (SPHD, -$785 million), and Invesco QQQ Trust 1 (QQQ, -$662 million).
Exchange-Traded Fixed Income Funds
Exchange-traded fixed income funds observed a net $3.5 billion weekly inflow—the macro-group’s fourteenth inflow in 16 weeks. Fixed income ETFs reported a weekly return of positive 0.61% on average.
Corporate-investment grade ETFs (+$1.6 billion), corporate-high yield ETFs (+$1.4 billion), and flexible funds ETFs (+$1.1 billion) were the largest weekly inflows under taxable fixed income ETFs. All three subgroups were also in the top three of inflows last week under taxable fixed income ETFs. Corporate-investment grade ETFs have seen six straight weeks of inflows, leading them to their largest four-week inflow moving average since September 2021. The subgroup also realized a positive 0.46% on average over the week.
Government-Treasury (-$611 million) and corporate-high quality ETFs (-$2 million) were the only subgroups to report outflows under taxable fixed income ETFs greater than $1 million. Government-Treasury ETFs have suffered back-to-back weeks of outflows despite back-to-back weeks of weekly gains.
Municipal bond ETFs reported a $261 million inflow over the week, marking their sixth weekly inflow over the past seven weeks. The subgroup realized a positive 0.60% on average, their seventh straight week of performance in the black.
iShares: iBoxx $Investment Grade Corporates (LQD, +$1.4 billion) and iShares: 20+ Treasury Bond ETF (TLT, +$1.3 billion) attracted the largest amounts of weekly net new money for taxable fixed income ETFs.
On the other hand, SPDR Bloomberg 1-3 Month T-Bill (BIL, -$1.2 billion) and PIMCO ETF: Enhanced Short Maturity Active (MINT, -$537 million) suffered the largest weekly outflows under all taxable fixed income ETFs.
Conventional Equity Funds
Conventional equity funds (ex-ETFs) witnessed weekly outflows (-$7.0 billion) for the twenty-sixth straight week. Conventional equity funds posted a weekly return of positive 2.55%, their third consecutive week of plus-side performance.
Growth/value-large cap funds (-$4.5 billion), international equity (-$1.4 billion), and global equity funds (-$519 million) were the largest subgroup outflows under conventional equity funds. Growth/value-large cap funds observed their sixteenth weekly outflows in a row and their second-largest weekly outflows of the year. International equity conventional funds have suffered 16 straight weeks of outflows despite three consecutive weeks of positive performance. Their four-week outflow moving average has remained greater than $1.3 billion for 13 straight weeks.
The only conventional equity subgroups to record inflows were sector-other funds (+$245 million) and sector-utilities (+$21 million). Conventional sector-other funds realized a positive 0.71% on the week.
Conventional Fixed Income Funds
Conventional taxable-fixed income funds realized a weekly inflow of $332 million—marking their first weekly inflow in 28 weeks. The subgroup has produced a negative four-week flow moving average of at least $1.3 billion in 27 consecutive weeks. The macro-group recorded a positive 0.97% on average—their third straight week in the black.
Corporate-high yield (+$1.5 billion), flexible funds (+$1.5 billion), government-Treasury (+$214 million), and corporate-high quality funds (+$37 million) were the only taxable fixed income conventional fund subgroups to attract weekly inflows. Conventional corporate-high yield funds realized a positive 2.00% over the week, marking their fifth straight week of positive performance. The subgroup also witnessed back-to-back weeks of more than $1 billion in inflows for the first time since the first week of June 2020.
International & global debt conventional funds (-$1.1 billion), balanced funds (-$784 million), and government-Treasury & mortgage funds (-$441 million) led the macro-group in outflows. International & global debt conventional funds have reported 30 straight weeks of outflows and their largest four-week outflow moving average since April 2020.
Municipal bond conventional funds (ex-ETFs) returned a positive 1.02% over the fund-flows week—their seventh straight positive performing week. The subgroup experienced $833 million in inflows, marking only its third week of inflows over the past 20. The subgroup has posted their first four-week moving after taking inflows in 28 weeks.
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