by Jack Fischer.
During Refinitiv Lipper’s fund-flows week ended September 14, 2022, investors were overall net redeemers of fund assets (including both conventional funds and ETFs) for the third straight week, withdrawing a net $26.1 billion.
Taxable bond funds (+$3.4 billion) were the only macro-group to attract funds, while money market funds (-$15.3 billion), equity funds (-$12.7 billion), and tax-exempt funds (-$1.4 billion) posted outflows.
At the close of Refinitiv Lipper’s fund-flows week, the DJIA (-1.41%) and S&P 500 (-0.85%) traded negative for the third week in four, while the Nasdaq suffered its fourth consecutive week with sub-zero returns. The Russell 2000 (+0.35%) was the only U.S. broad-based equity index to log plus-side returns.
Both the Bloomberg Municipal Bond Total Return Index (-0.40%) and Bloomberg U.S. Aggregate Bond Total Return Index (-0.93%) ended the week in the red for the sixth consecutive week.
Overseas broad market indices traded mostly positive; for the first week in five the FTSE 100 (+1.54%), Nikkei 225 (+2.75%), and Dax 30 (+1.36%) appreciated.
The 10-two Treasury yield spread remained negative (-0.37), marking the fifty-second straight trading session with an inverted yield curve. As of Wednesday, September 14, investors will receive greater compensation for investing in the two-year Treasury note (3.78%) than the 10-year (3.41%).
According to Freddie Mac, the 30-year fixed-rate average (FRM) increased for the fifth week in a row—currently at 6.02%. The United States Dollar Index (DXY, -0.17%) fell as the VIX (+5.81%) increased over the course of the week.
Our fund-flows week kicked off Thursday, September 8, with the European Central Bank (ECB) announcing its largest rate hike—75 basis points (bps)—in its 24-year history. ECB President Christine Lagarde said, “We think it will take several meetings…It’s probably more than two, including this one, but it’s probably also going to be less than five.” Europe’s energy crisis has been the main driver of the euro zone’s 9.1% August inflation numbers. Lagarde continued, “I cannot reduce the price of energy. I cannot convince the big players of this world to reduce gas prices.” With the United Kingdom leaving the EU in 2020, they now have to tackle their energy problems alone. Newly appointed Prime Minister Liz Truss laid out a new energy plan which is designed so the average U.K. household will pay no more than $2,880 in annual energy costs over the next two years. In the U.S. broad-based equity markets traded positive—Russell 2000 (+0.81%), S&P 500 (+0.66%), DJIA (+0.61%), and Nasdaq (+0.60%).
U.S. equity indices ended the calendar week on September 9, with equity markets pushing forward for the third straight daily session—the Nasdaq (+2.11%) led the way. According to Refinitiv Proprietary Research, of the 498 companies in the S&P 500 to report Q2 earnings, 77.5% have reported earnings above analyst estimates. This compares to the prior four-quarter average of 80.6%. Q2 year-over-year earnings growth rate is expected to be positive 8.5% but excluding the energy sector that number falls to negative 2.1%. The communication services sector currently has the lowest earnings growth rate (-20.3%) of all 11 sectors.
On Monday, September 12, U.S. freight railroad unions are threatening to strike as they cut back on services amid their contract negotiations. The potential strike date is September 17 unless there is significant progress. Economists fear a strike would be disastrous in the fight against inflation. Any extended strike could stretch supply chains even thinner and lead to increases in transportation costs on foods and goods. A survey conducted by the New York Federal Reserve Bank found that median one-year annual inflation expectations fell in August from 6.2% to 5.7%. U.S. equity markets rose for the fourth straight day—Nasdaq (+1.27%), Russell 2000 (+1.23%), S&P 500 (+1.06%), and DJIA (+0.71%).
On Tuesday, September 13, the Department of Labor (DOL) reported the August Consumer Price Index (CPI) increased year over year by 8.3%, which was below July’s 8.5% increase but above economists’ estimates. The month-over-month increase was 0.1%, when economists forecasted a drop. Energy costs fell 5%, helped by gas prices falling 10.6%—gas prices were still 25.6% higher than they were in 2021. The unexpected print caused U.S. equity markets to tumble—the Nasdaq (-5.16%), S&P 500 (-4.32%), and DJIA (-3.94%) suffered their worst daily session in more than one year. The two-year Treasury yield increased 5.18%, its largest gain in more than one month.
Our fund-flows week wrapped up Wednesday, September 14, with the railway workers and companies coming to a tentative labor agreement that would avoid a potential strike. The Association of American Railroads said the agreement would provide employees a 24% wage increase over the next four years as well as a one-time bonus that averages out to $11,000. The deal covers around 60,000 workers. The DOL also reported the Producer Price Index (PPI) declined month over month in August (-0.1%), meeting economists’ estimates. The 12-month PPI increase stood at 8.7%, down from July’s annual gain (9.8%) and below estimates. Gasoline prices reported a 12.7% decline in August, aiding the prices for final demand for goods to fall by 1.2%. U.S. equity markets bounced back—Nasdaq (+0.74%), Russell 2000 (+0.38%), S&P 500 (+0.34%), and DJIA (+0.10%).
Exchange-traded equity funds recorded $5.9 billion in weekly net outflows, marking their third straight weekly outflows. The macro-group posted a negative return of 0.20% on the week, their fourth consecutive week of sub-zero returns. The four-week moving average outflow level for the macro-group hit its highest total level since March 2020.
Growth/value-large cap ETFs (-$4.8 billion), sector-technology (-$1.4 billion), and global equity ETFs (-$1.1 billion) were the largest outflow subgroups under the macro-group. Growth/value-large cap ETFs posted their third straight weekly outflow and third week of negative performance in four. Sector-technology funds have suffered four straight weeks of outflows while realizing five straight weeks of negative performance.
Equity Income ETFs (+$1.5 billion), sector-other ETFs (+$536 million), and sector-utilities ETFs (+$288 million) were the largest equity ETF subgroups to post inflows this week. Equity income fund ETFs have produced 12 consecutive weeks of net inflows and are on pace to post their twenty-sixth straight month of inflows. The subgroup realized a negative 0.93% over the course of the week.
Over the past fund-flows week, the top three equity ETF flow attractors were Select Sector: Consumer Stables SPDR (XLP, +$1.3 billion), iShares: MSCI USA Minimum Volatility Factor (USMV, +$702 million), and iShares: Core S&P 500 (IVV, +$635 million).
Meanwhile, the bottom three equity ETFs in terms of weekly outflows were SPDR S&P 500 ETF (SPY, -$3.8 billion), Invesco QQQ Trust 1 (QQQ, -$1.5 billion), and iShares MSCI ACWI (ACWI, -$1.1 billion).
Exchange-traded fixed income funds observed a net $7.2 billion weekly inflow—the macro-group’s eleventh inflow in 12 weeks. Fixed income ETFs reported a weekly return of negative 0.45% on average, its sixth week straight realizing a negative return.
Government-Treasury ETFs (+$4.6 billion), corporate-investment grades ETFs (+$1.5 billion), and corporate-high yield ETFs (+$945 million) logged the largest weekly inflows under taxable fixed income subgroups. Government-Treasury ETFs have observed three consecutive weeks of inflows despite six straight weeks of sub-zero performance. This subgroup has been red hot and is on pace to attract its fifth month of more than $10 billion in inflows over the last seven months—this subgroup only has ever attracted more than $9.1 billion prior to this recent stretch.
International & global debt ETFs (-$277 million), government-mortgage ETFs (-$65 million), and corporate-high quality ETFs (-$7 million) posted the only outflows of more than $5 million under taxable fixed income ETFs. Despite realizing its first positive weekly performance in five weeks (+0.18%), international & global debt ETFs posted their third weekly outflow in a row, leading to their four-week moving average becoming negative for the first time in eight weeks.
Municipal bond ETFs reported a $4 million outflow over the week, marking their sixth weekly outflow in as many weeks. The subgroup realized a negative 0.28% on average, their sixth straight week in the red.
iShares: Short Treasury Bond ETF (SHV, +$1.5 billion) and SPDR Bloomberg 1-3 Months T-Bill ETF (BIL, +$768 million) attracted the largest amounts of weekly net new money for taxable fixed income ETFs.
On the other hand, SPDR Portfolio Intermediate Term Treasury ETF (SPTI, -$276 million) and ProShares: Short S&P 500 ETF (SH, -$211 million) suffered the largest weekly outflows under all taxable fixed income ETFs.
Conventional equity funds (ex-ETFs) witnessed weekly outflows (-$6.8 billion) for the thirty-third straight week. Conventional equity funds posted a weekly return of negative 0.09%, their third week of negative performance in four.
Growth/value-large cap funds (-$4.2 billion), international equity (-$1.3 billion), and global equity funds (-$970 million) were the largest subgroup outflows under conventional equity funds. Growth/value-large cap funds observed their twenty-second weekly outflows in a row moving their four-week moving outflow figure to reach its highest point since December. International equity conventional funds have also suffered 22 straight weeks of outflows even though the subgroup realize positive weekly performance (0.60%) for the first time in five weeks.
Sector-energy (+$218 million), equity income funds (+$182 million), and sector-utilities (+$15 million) were the only subgroup attractors of new capital under conventional equity funds. Conventional sector-energy funds witnessed their first weekly inflow in three weeks while realizing a positive 3.71% over the week. Conventional equity income funds have logged three consecutive weeks of inflows and their largest weekly inflows since April.
Conventional Fixed Income Funds
Conventional taxable-fixed income funds realized a weekly outflow of $3.8 million—marking their fourth straight weekly outflows. The subgroup has produced a negative four-week flow moving average in 33 consecutive weeks. The macro-group recorded a negative 0.49% on average—their fifth straight week of negative returns.
Conventional corporate-investment grade funds (-$2.2 billion), balanced funds (-$427 million), and international & global debt funds (-$388 million) led the macro-group in outflows. Corporate-investment grade funds suffered their fourth consecutive week of outflows and their thirtieth outflows in the past 31 weeks. The subgroup realized a negative 0.65% on the week, marking its sixth straight week with sub-zero performance.
Government-Treasury & mortgage funds (+$164 million) were the only taxable fixed income conventional fund subgroups to attract weekly inflows. The subgroup logged its second straight weekly inflows despite observing its worst weekly performance (-0.89%) since mid-June.
Municipal bond conventional funds (ex-ETFs) returned a negative 0.47% over the fund-flows week—their sixth consecutive week of negative returns. The subgroup experienced $1.4 billion in outflows, marking the fifth week of outflows in the last six. Conventional municipal bond funds have only experienced five weeks of inflows year to date.
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