by Jack Fischer.
During Refinitiv Lipper’s fund-flows week ended September 28, 2022, investors were overall net redeemers of fund assets (including both conventional funds and ETFs) for the fourth week in five, removing a net $23.2 billion.
Money market funds (+$7.2 billion) were the only macro-group to attract funds, while taxable bond funds (-$14.9 billion), equity funds (-$11.8 billion), and tax-exempt funds (-$3.6 billion) posted outflows.
At the close of Refinitiv Lipper’s fund-flows week, the Nasdaq (-1.50%) logged negative weekly performance for the sixth straight week, while the Russell 2000 (-2.66%), S&P 500 (-1.87%), and DJIA (-1.66%) realized negative performance for the fifth time in the past six weeks.
Both the Bloomberg Municipal Bond Total Return Index (-1.59%) and Bloomberg U.S. Aggregate Bond Total Return Index (-1.56%) ended the week in the red for the eighth consecutive week.
Overseas, both the DAX 30 (-6.97%) and FTSE 100 (-8.21%) traded negative for the sixth week in seven, while the Nikkei 225 (-4.48%) and Shanghai Composite (-4.93%) also struggled.
The 10-two Treasury yield spread remained negative (-0.39), marking the sixty-second straight trading session with an inverted yield curve. As of Wednesday, September 28, investors will receive greater compensation for investing in the two-year Treasury note (4.09%) than the 10-year (3.71%).
According to Freddie Mac, the 30-year fixed-rate average (FRM) increased for the sixth week in a row—currently at 6.70%. Both the United States Dollar Index (DXY, +1.77%) and the VIX (+7.26%) increased over the course of the week.
Our fund-flows week kicked off Thursday, September 22, with equity markets continuing their post-Federal Open Market Committee (FOMC) meeting slide—Russell 2000 (-2.48%), Nasdaq (-1.80%), S&P 500 (-1.72%), and DJIA (-1.62%). The FOMC continued to increase interest rates by another 75 basis points (bps). Comments from the meeting are leading market participants to believe a “soft landing” is no longer a likely scenario for the economy. Federal Reserve Chair Jerome Powell said,
“We have got to get inflation behind us. I wish there were a painless way to do that. There isn’t.”
The Bureau of Economic Analysis (BEA) released the U.S. current account data which showed a more than expected decrease in the U.S. deficit. The current account deficit shrank from a record $282.5 billion gap in the first quarter to a $251.1 billion gap—exports increased by $52 billion while imports increased by $20.8 billion. The 10-year Treasury yield jumped 5.58%, marking its largest daily spike since the first week in August.
U.S. equity indices ended the calendar week on September 23 as equity and bond markets continue to struggle. For the second straight day, the Russell 2000 (-2.48%) was hit the hardest of all U.S. broad-based equity indices. The two-year Treasury yield increased by 2.11%, while the 10-year fell by 0.30%. The 52-bps inversion is the deepest since early 2000. An inverted yield curve is often viewed as a leading indicator of a recession and has preceded every U.S. recession over the past 50 years.
On Monday, September 26, the British pound hit an all-time low against the U.S. dollar, falling as low as $1.03. Just last week the Bank of England (BoE) increased its lending rate by 50 bps to 2.25%, marking its highest level since 2008. Meanwhile, the United Kingdom’s Chancellor of Exchequer—the senior minister of the Crown within the U.K. government—announced massive tax cuts and signaled more are coming. In the U.S., broad-based equity markets fell for the fifth straight daily session—Russell 2000 (-1.41%), DJIA (-1.11%), S&P 500 (-1.03%), and Nasdaq (-0.60%). The 10-year Treasury yield increased 4.95%.
On Tuesday, September 27, both the DJIA (-0.43%) and S&P 500 (-0.21%) set new 2022 lows, while the Nasdaq (+0.25%) and Russell 2000 (+0.40%) appreciated on the day. Federal Reserve Bank of St. Louis President James Bullard told an economic forum in London that the Fed plans to push the target rate to 4.5% by the end of 2022 and that interest rates must be kept high “for some time” in order to curb inflation. The S&P CoreLogic Case-Shiller Index reported that the rate of increase in home prices decelerated during July at its fasted pace in the 27-year history of the index. The two-year Treasury yield fell 0.16%, while the 10-year yield increased 2.14%.
Our fund-flows week wrapped up Wednesday, September 28, with the Federal Reserve Bank of Atlanta President Raphael Bostic telling reporters that
“(Inflation) is still too high and not moving with enough speed back down to our 2% target.” Bostic continued, saying “It’s caused me to really adjust my policy thinking.”
The Mortgage Bankers Association (MBA) reported that average rates on a 30-year fixed-rate conforming loan were above 6.5% for the first time since August 2008—this time last year the same rate was quoted at 3.1%. Overseas, the BoE stated that it would be buying long-dated U.K. bonds, or “gilts,” to aid the struggling bond market and to “restore orderly market conditions.” U.S. equity markets surged to end the day—Russell 2000 (+3.17%), Nasdaq (+2.05%), S&P 500 (+1.97%), and DJIA (+1.88%).
Exchange-traded equity funds recorded $1.0 billion in weekly net outflows, marking their fourth week in five reporting an outflow. The macro-group posted a negative return of 2.58% on the week, their sixth consecutive week of sub-zero returns.
Sector-other ETFs (-$3.4 billion), growth/value-small cap ETFs (-$1.3 billion), and growth/value aggressive ETFs (-$601 million) were the largest outflow subgroups under the macro-group. Sector-other ETFs reported their fourth largest weekly outflow on record as they suffered their fifth weekly outflow in six. The subgroup reported their sixth weekly performance (-2.47%) in the red over the past seven weeks.
Growth/value-large cap ETFs (+$4.3 billion), international equity ETFs (+$1.3 billion), and equity income fund ETFs (+$246 million) were the largest equity ETF subgroups to post inflows this week. Growth/value-large cap ETFs reported their second straight weekly inflow despite realizing their fifth negative weekly performance in six. International equity ETFs ended a seven-week slide as they observed their largest weekly intake since the last week in May. This subgroup realized a negative 4.16% on the week.
Over the past fund-flows week, the top three equity ETF flow attractors were iShares: Core S&P Total US Market (ITOT, +$1.7 billion), Invesco QQQ Trust 1 (QQQ, +$1.5 billion), and iShares: MSCI EAFE Minimum Volatility Factor ETF (EFAV, +$1.4 billion).
Meanwhile, the bottom three equity ETFs in terms of weekly outflows were iShares: Core S&P 500 (IVV, -$870 million), iShares: Core MSCI Emerging Markets (IEMG, -$845 million), and iShares: Core S&P Small-Cap ETF (IJR, -$603 million).
Exchange-traded fixed income funds observed a net $2.8 billion weekly outflow—the macro-group’s second straight weekly outflow. Fixed income ETFs reported a weekly return of negative 1.30% on average, its eighth week straight realizing a negative return.
Corporates-investment grade ETFs (-$3.5 billion), flexible funds ETFs (-$2.5 billion), and corporates-high yield ETFs (-$2.2 billion) posted the largest outflows under taxable fixed income ETFs. Corporates-investment grade ETFs logged their fifth weekly outflow in the past six weeks as they also realized the eighth week in a row of sub-zero performance (-1.34%). Flexible funds ETFs logged their fourth largest weekly outflow of all time despite being one of the few subgroups to realize positive weekly performance (+0.05%).
Government-Treasury ETFs (+$6.1 billion) and government-mortgage ETFs (+$107 million) logged the only weekly inflows under taxable fixed income subgroups. Government-Treasury ETFs have observed their fifth largest weekly inflow on record as they logged their fifth consecutive week of inflows. Government-Treasury ETFs have also suffered eight straight weeks of sub-zero performance (-1.11%). This subgroup has been red hot and is on pace to attract its largest monthly intake of all time and 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 $296 million outflow over the week, marking their eighth weekly outflow in as many weeks. The subgroup realized a negative 1.40% on average, their eighth straight week in the red.
SPDR Bloomberg 1-3 Months T-Bill ETF (BIL, +$2.3 billion) and iShares: 20+ Treasury Bond ETF (TLT, +$917 million) attracted the largest amounts of weekly net new money for taxable fixed income ETFs.
On the other hand, iShares: iBoxx $Investment Grade Corporates ETF (LQD, -$2.6 billion) and ProShares: UltraPro Short QQQ ETF (SQQQ, -$1.2 billion) suffered the largest weekly outflows under all taxable fixed income ETFs.
Conventional equity funds (ex-ETFs) witnessed weekly outflows (-$10.7 billion) for the thirty-fourth straight week. This marks the largest weekly outflow of the year for the macro-group. Conventional equity funds posted a weekly return of negative 2.47%.
Conventional growth/value-large cap funds (-$4.0 billion), international equity funds (-$2.8 billion), and global equity funds (-$895 million) were the largest subgroup outflows under conventional equity funds. Growth/value-large cap funds reported their twenty-third weekly outflow in 24 while realizing a negative 1.87% over the week. International equity funds have suffered 24 straight weeks of outflows and are on pace for their eighth consecutive monthly outflows. The subgroup returned a negative 3.64% on average over the week.
No conventional equity fund subgroups reported inflows over the week.
Conventional taxable-fixed income funds realized a weekly outflow of $12.1 billion—marking their seventh straight weekly outflow and largest weekly outflow since April 2020. The subgroup has produced a negative four-week flow moving average in 35 consecutive weeks. The macro-group recorded a negative 1.83% on average—their seventh straight week of negative returns.
Conventional corporate-investment grade funds (-$6.8 billion), flexible funds (-$1.8 billion), and balanced funds (-$1.1 billion) led the macro-group in outflows. Corporate-investment grade funds suffered their sixth consecutive week of outflows and their thirty-fourth outflow in the past 36 weeks. The subgroup realized a negative 1.49% on the week, marking its eighth straight week with sub-zero performance. This was the fourth largest weekly outflow of all time for conventional corporate-investment grade funds.
No taxable fixed income conventional fund subgroup reported inflows over the week.
Municipal bond conventional funds (ex-ETFs) returned a negative 1.74% over the fund-flows week—their eighth consecutive week of negative returns. The subgroup experienced $3.3 billion in outflows, marking the seventh week of outflows in the last eight. Conventional municipal bond funds have only experienced five weeks of inflows year to date.
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