by Jack Fischer.
During Refinitiv Lipper’s fund-flows week ended September 21, 2022, investors were overall net purchasers of fund assets (including both conventional funds and ETFs) for the first week in four, adding a net $18.9 billion.
Money market funds (+$30.0 billion) were the only macro-group to attract funds, while taxable bond funds (-$6.8 billion), equity funds (-$2.3 billion), and tax-exempt funds (-$2.0 billion) posted outflows. This was the largest weekly inflow for money market funds over the last 17 weeks.
At the close of Refinitiv Lipper’s fund-flows week, the Nasdaq (-4.26%) logged negative weekly performance for the fifth straight week, while the Russell 2000 (-4.15%), S&P 500 (-3.96%), and DJIA (-3.06%) realized negative performance for the fourth time in the past five weeks.
Both the Bloomberg Municipal Bond Total Return Index (-0.96%) and Bloomberg U.S. Aggregate Bond Total Return Index (-0.56%) ended the week in the red for the seventh consecutive week.
Overseas, both the DAX 30 (-3.17%) and FTSE 100 (-2.67%) traded negative for the fifth week in six, while the Nikkei 225 (-2.84%) and Shanghai Composite (-3.17%) also struggled.
The 10-two Treasury yield spread remained negative (-0.48), marking the fifty-seventh straight trading session with an inverted yield curve. As of Wednesday, September 21, investors will receive greater compensation for investing in the two-year Treasury note (4.00%) than the 10-year (3.51%).
According to Freddie Mac, the 30-year fixed-rate average (FRM) increased for the fifth week in a row—currently at 6.29%. Both the United States Dollar Index (DXY, +0.90%) and the VIX (+6.54%) increased over the course of the week.
Our fund-flows week kicked off Thursday, September 15, with Freddie Mac announcing the average rate on a 30-year conforming home loan moved above 6% for the first time since November 2008—one year ago the same rate was at 2.86%. The Department of Commerce reported that retail sales increased 0.3% over the prior month. The unexpected increase comes after a 0.4% fall in July. The August 12-month increase was reported as a 9.1% increase. U.S. broad-based equity markets fell on the day—Nasdaq (-1.43%), S&P 500 (-1.13%), Russell 2000 (-0.72%), and DJIA (-0.56%).
U.S. equity indices ended the calendar week on September 16, with bearish remarks out of Bank of America. In a remark to clients, the bank said it believes an “earnings recession shock” will drive market declines, citing the recent warning from FedEx (FDX). FedEx came out and said that the current decline in global economic conditions is impacting its business and investors should expect weaker profits from the company. The company withdrew its full-year guidance which was given in June due to “global volume softness that accelerated in the final weeks of the quarter.” Despite a nasty outlook on Wall Street, the preliminary University of Michigan Index of Consumer Sentiment poll was up in September. The index was reported at 59.5, an increase from 58.2 in August and its highest level since April. U.S. equity indices traded negative for the second straight day, led by the Russell 2000 (-1.48%). The two-year Treasury yield (-0.36%) fell on the day, marking its first daily decline in seven sessions.
On Monday, September 19, U.S. broad-based equity markets traded positive for the only time over the fund-flows week—Russell 2000 (+0.81%), Nasdaq (+0.76%), S&P 500 (+0.69%), and DJIA (+0.61%). The solid day from equity markets comes ahead of the Federal Reserve’s two-day policy meeting in which market participants expect another interest rate increase of at least 75 basis points (bps). In other news, the National Association of Home Builders (NAHB) published its market sentiment report which showed a decline for the ninth straight month. As mortgage rates and construction costs continue to increase, both demand for new homes and the supply of new homes has seen decreases. The two-(+2.25%), three-(+2.23%), five-(1.85%), seven-(+1.54%), and 10-year (+1.22%) Treasury yields realized increases on Monday.
On Tuesday, September 20, Treasury yields climbed to multi-year highs as the first day of the Federal Reserve meeting commenced—the 10-year Treasury yield rose to 3.96%, marking its highest level since 2007. The 10-two Treasury yield spread ended the day at negative 0.46, the second lowest level of its current 57-day stretch of inverted yields. According to the September Global Risk Survey released by Oxford Economics, almost half the businesses in the survey responded that they believe a global recession is likely over the next year. The top triggers, among survey respondents, were an energy market disruption and global monetary policy tightening.
Our fund-flows week wrapped up Wednesday, September 21, with the Federal Reserve moving the federal funds rate up 75 bps for the third meeting in a row—bringing the range to 3.00%-3.25% and its highest level since 2008. Fed President Jerome Powell said at the press conference, “My main message has not changed since Jackson Hole. The FOMC is strongly resolved to bring inflation down to 2% and we will keep at it until the job is done.” The Fed, starting this month, has also begun a program to shrink its asset portfolio. The central bank will reduce its $8.8 trillion portfolio by up to $95 billion each month by letting securities mature without replacing them. Equity markets sunk on the day—Nasdaq (-1.79%), S&P 500 (-1.71%), DJIA (-1.70%), and Russell 2000 (-1.42%).
Exchange-traded equity funds recorded $1.1 billion in weekly net inflows, marking their first week in four reporting an inflow. The macro-group posted a negative return of 3.88% on the week, their fifth 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 (+$5.8 billion), growth/value-small cap ETFs (+$419 million), and equity income ETFs (+$400 million) were the largest equity ETF subgroups to post inflows this week. Growth/value-large cap ETFs reported their first weekly inflows over the last four weeks despite realizing negative weekly performance (-4.08%). Equity income funds ETFs have produced 13 consecutive weeks of net inflows and are on pace to post their twenty-sixth straight month of inflows.
Sector-financial/banking ETFs (-$2.0 billion), international equity ETFs (-$1.4 billion), and sector-other ETFs (-$1.4 billion) were the largest outflow subgroups under the macro-group. Sector-financial/banking ETFs have suffered three straight weeks of outflows and their largest weekly outflows since the first week in July. The subgroup reported a negative 2.63% over the week, marking its fourth week of sub-zero performance in the past five.
Over the past fund-flows week, the top three equity ETF flow attractors were SPDR S&P 500 ETF (SPY, +$4.0 billion), Invesco QQQ Trust 1 (QQQ, +$1.7 billion), and ProShares: UltraPro QQQ (TQQQ, +$445 million).
Meanwhile, the bottom three equity ETFs in terms of weekly outflows were Select Sector: Financials Sector (XLF, -$1.9 billion), iShares MSCI Emerging Markets (EEM, -$721 million), and Select Sector: Consumer Stables SPDR (XLP, -$705 million).
Exchange-traded fixed income funds observed a net $499 million weekly outflow—the macro-group’s first outflow in four weeks. Fixed income ETFs reported a weekly return of negative 0.34% on average, its seventh week straight realizing a negative return.
Corporates-investment grade ETFs (-$1.6 billion), corporates-high yield ETFs (-$1.2 billion), and flexible funds ETFs (-$317 million) posted the largest outflows under taxable fixed income ETFs. Corporates-investment grade ETFs logged their fourth weekly outflow in the past five weeks as they also realized the seventh week in a row of sub-zero performance.
Government-Treasury ETFs (+$2.4 billion), international & global debt ETFs (+$170 million), and government-Treasury & mortgage ETFs (+$16 million) logged the only weekly inflows under taxable fixed income subgroups. Government-Treasury ETFs have observed four consecutive weeks of inflows despite seven 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 never attracted more than $9.1 billion prior to this recent stretch.
Municipal bond ETFs reported a $9 million outflow over the week, marking their seventh weekly outflow in as many weeks. The subgroup realized a negative 0.75% on average, their seventh straight week in the red.
SPDR Bloomberg 1-3 Months T-Bill ETF (BIL, +$897 million) and iShares: 1-3 Treasury Bond ETF (SHY, +$766 million) attracted the largest amounts of weekly net new money for taxable fixed income ETFs.
On the other hand, ProShares: UltraPro Short QQQ ETF (SQQQ, -$896 million) and iShares: iBoxx $Investment Grade Corporates ETF (LQD, -$813 million) suffered the largest weekly outflows under all taxable fixed income ETFs.
Conventional equity funds (ex-ETFs) witnessed weekly outflows (-$3.3 billion) for the thirty-third straight week. Conventional equity funds posted a weekly return of negative 4.02%, their worst weekly return in 14 weeks.
Conventional international equity funds (-$1.8 billion), global equity funds (-$377 million), and equity income funds (-$329 million) were the largest subgroup outflows under conventional equity funds. International equity funds have suffered 23 straight weeks of outflows and are on pace for their eight consecutive monthly outflows. The subgroup returned a negative 3.89%, on average, over the week.
Growth/value-small cap funds (+$58 million), growth/value-large cap funds (+$21 million), and sector-utilities (+$7 million) were the only subgroup attractors of new capital under conventional equity funds. Growth/value-small cap and large cap funds observed their first weekly inflow in 33 and 23 weeks, respectively.
Conventional taxable-fixed income funds realized a weekly outflow of $6.3 billion—marking their sixth straight weekly outflow. The subgroup has produced a negative four-week flow moving average in 34 consecutive weeks. The macro-group recorded a negative 1.17% on average—their sixth straight week of negative returns.
Conventional corporate-investment grade funds (-$3.4 billion), flexible funds (-$662 million), and government-mortgage funds (-$540 million) led the macro-group in outflows. Corporate-investment grade funds suffered their fifth consecutive week of outflows and their thirty-third outflow in the past 35 weeks. The subgroup realized a negative 0.54% on the week, marking its seventh straight week with sub-zero performance.
No taxable fixed income conventional fund subgroup reported inflows over the week.
Municipal bond conventional funds (ex-ETFs) returned a negative 0.98% over the fund-flows week—their seventh consecutive week of negative returns. The subgroup experienced $2.0 billion in outflows, marking the sixth week of outflows in the last seven. Conventional municipal bond funds have only experienced five weeks of inflows year to date.
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