by Jack Fischer.
During Refinitiv Lipper’s fund-flows week ended October 26, 2022, investors were overall net purchasers of fund assets (including both conventional funds and ETFs) for the first week in five, adding a net $7.1 billion.
Equity funds (+$7.8 billion) and money market funds (+$1.4 billion) were the only macro-groups to attract funds, while tax-exempt funds (-$1.8 billion) and taxable bond funds (-$315 million) posted outflows.
At the close of Refinitiv Lipper’s fund-flows week, U.S. broad-based equity indices realized positive performance for the second straight week—DJIA (+6.65%), Russell 2000 (+4.55%), S&P 500 (+3.67%), and Nasdaq (+2.72%).
The Bloomberg Municipal Bond Total Return Index (-1.82%) posted sub-zero performance for the second straight week. The Bloomberg U.S. Aggregate Bond Total Return Index (+0.79%) ended the week in the black for the first time in 11 weeks.
Overseas, the Shanghai Composite (-0.97%) depreciated for the third straight week. The DAX 30 (+6.30%), FTSE 100 (+5.01%), and Nikkei 225 (+2.77%) recorded gains.
The 10-two Treasury yield spread remained negative (-0.40), marking the eighty-second straight trading session with an inverted yield curve. As of Wednesday, October 26, investors will receive greater compensation for investing in the two-year Treasury note (4.42%) than the 10-year (4.02%).
According to Freddie Mac, the 30-year fixed-rate average (FRM) increased for the tenth week in 11—currently at 7.08% and its highest level since April 2002. Both the United States Dollar Index (DXY, -2.91%) and the VIX (-12.76%) decreased over the course of the week.
Our fund-flows week kicked off Thursday, October 20, with bond yields rising and equity markets falling for the second straight day. The Russell 2000 fell 1.24% as the 10-year Treasury yield rose 2.35%. Sales on existing homes were reported to have fallen for the eighth straight month as mortgage rates continue to increase, killing demand and affordability. Federal Reserve Bank of Philadelphia President Patrick Harker claimed that inflation will continue to remain above the Fed’s goal of 2% for the foreseeable future and that the Fed will have to keep raising rates “for a while” to fight it. Harker believes that the fed funds rate will be raised above 4% by the end of the year given the “disappointing lack of progress.” Also, in breaking news on Thursday, U.K. Prime Minister Liz Truss said she will step down after only 45 days. Truss introduced a budget agenda that the overall market rejected, causing chaos. Her plan included big-spending side-by-side with significant tax cuts. The announcement alone led to a liquidity crisis in the gilt market.
U.S. equity indices ended the calendar week on October 21 strongly, ending a two-day losing streak—DJIA (+2.47%), S&P 500 (+2.37%), Nasdaq (+2.31%), and Russell 2000 (2.22%). Treasury yields all fell on the day as well as buying ensued; the two- and 10-year Treasury yields decreased by 0.42% and 2.88%, respectively. President Joe Biden extended oil releases from the U.S. Strategic Petroleum Reserve (SPR) into December. Oil sales from SPR now account for 165 million barrels, which was only supposed to go until October, then November. The emergency stockpile of 405 million barrels hit its lowest level since 1984.
On Monday, October 24, U.S. equity markets rallied for the second straight day—DJIA (+1.34%), S&P 500 (+1.19%), Nasdaq (+0.86%), and Russell 2000 (+0.35%). Treasury yields advanced slightly with the two- and 10-year increasing by 0.16% and 0.47%, respectively. In the U.K., Rishi Sunak was elected Tory party leader by Conservative lawmakers and will become the country’s third prime minister in just two months. Sunak worked at Goldman Sachs and was a partner at hedge funds before serving as Chief Secretary to the Treasury (2019-2020) and as Chancellor of the Exchequer (2020-2022). The National Association for Business Economists (NABE) reported in their October Business Conditions Survey that 52% of respondents felt there was a more-than-even likelihood of entering an economic recession within the next 12 months. The report showed that only 11% felt the U.S. is currently in a recession.
On Tuesday, October 25, equity markets realized gains for the third straight day—Russell 2000 (+2.73%), Nasdaq (+2.25%), S&P 500 (+1.63%), and DJIA (+1.07%). Treasury yields fell throughout the session—the two- and 10-year fell 0.42% and 2.88%, respectively. This was the largest single-day fall for the 10-year Treasury yield in the last month. Saudi Arabia’s oil minister, Prince Abdulaziz bin Salman, made remarks geared toward the U.S. saying countries using their emergency oil reserves are doing so to “manipulate markets rather than helping with shortages of supply.” The U.S. Consumer Confidence Index released by the Conference Board decreased to 102.5 in October, retreating after two straight months of gains and down from September’s 107.8 reading. The S&P CoreLogic Case-Shiller Index published by S&P Dow Jones showed that home price increases have slowed across the country. In August, the National Home Price NSA Index reported a 13.0% increase, down from 14.9% in July.
Our fund-flows week wrapped up Wednesday, October 26, with U.S. broad-based equity markets depreciating for the first day in four—led by the Nasdaq (-2.04%). The 10-year Treasury yield fell another 2.31%. New home sales, reported by the Commerce Department, showed the sales of new single-family homes fell 10.9% last month after rising 25% in August. September was the seventh month this year with a declining annual rate. Meta Platforms (META) fell 20% on the day following a poor Q3 earnings report, missing profits expectations while warning of upcoming sales challenges.
Exchange-traded equity funds recorded $15.8 billion in weekly net inflows, marking their fourth straight week of inflows and the largest since early March. The macro-group posted a positive return of 3.75% on the week, their third week of plus-side returns in four.
Growth/value-large cap ETFs (+$10.5 billion), international equity ETFs (+$1.6 billion), and sector-technology ETFs (+$1.5 billion) were the largest equity ETF subgroups to post inflows this week. Growth/value-large cap ETFs reported their sixth straight weekly inflow and largest weekly inflow since early February. Sector-technology ETFs attracted their largest weekly inflow of the year as they realized a positive 3.75% on the week.
Sector-other ETFs (-$402 million), sector-utilities ETFs (-$260 million), and growth/value-small cap ETFs (-$197 million) were the largest outflow subgroups under the macro-group. Sector-other ETFs reported their sixth straight weekly outflow as their four-week outflow moving average extended to 19 consecutive weeks. The subgroup reported their first weekly performance (+3.20%) in the black over the past three weeks.
Over the past fund-flows week, the top three equity ETF flow attractors were SPDR S&P 500 ETF (SPY, +$3.4 billion), iShares: Core S&P 500 (IVV, +$2.1 billion), and Invesco QQQ Trust 1 (QQQ, +$1.8 billion).
Meanwhile, the bottom three equity ETFs in terms of weekly outflows were iShares ESG Aware MSCI USA ETF (ESGU, -$1.5 billion), iShares: Core High Dividend ETF (HDV, -$1.2 billion), and iShares: Russell 2000 ETF (IWM, -$564 million).
Exchange-traded fixed income funds observed a net $7.0 billion weekly inflow—the macro-group’s fourth weekly inflow in as many weeks. Fixed income ETFs reported a weekly return of positive 0.39% on average, its first week in 11 with a positive return.
Corporate-investment grade ETFs (+$3.2 billion), corporate-high yield ETFs (+$3.0 billion), and government-mortgage ETFs (+$2.0 billion) posted the largest inflows under taxable fixed income ETFs. Corporates-investment grade has observed four straight weeks of inflows while gaining 0.56% over the week, on average. This was the largest weekly inflow for the subgroup since January 2021.
Government-Treasury ETFs (-$1.4 billion) and flexible funds ETFs (-$232 million) logged the only weekly outflows under taxable fixed income subgroups of greater than $1 million. Government-Treasury funds suffered their first weekly outflow in nine weeks, despite ending their 11-week stretch of negative weekly performance with a positive 0.40%.
Municipal bond ETFs reported a $446 million inflow over the week, marking their third weekly inflow in four weeks. The subgroup realized a negative 1.35% on average, their second straight week in the red.
iShares: MBS ETF (MBB, +$1.9 billion) and iShares: 0-5 High Yield Corp Bond ETF (SHYG, +$1.7 billion) attracted the largest amounts of weekly net new money for taxable fixed income ETFs.
On the other hand, iShares: US Treasury Bond (GOVT, -$3.5 billion) and iShares: TIPS Bond ETF (TIP, -$1.2 billion) suffered the largest weekly outflows under all taxable fixed income ETFs.
Conventional equity funds (ex-ETFs) witnessed weekly outflows (-$8.0 billion) for the thirty-eighth straight week. Conventional equity funds posted a weekly return of positive 3.60%.
Conventional growth/value-large cap funds (-$3.0 billion), international equity funds (-$2.5 billion), and global equity funds (-$747 million) were the largest subgroup outflows under conventional equity funds. Growth/value-large cap funds saw their fifth straight week of outflows, despite gaining 3.61%. International equity funds have suffered 28 straight weeks of outflows as they returned a positive 3.12% on average over the week.
Gold and natural resources funds (+$43 million) and sector-energy funds (+$4 million) were the only conventional equity fund subgroups to report a weekly inflow. Gold and natural resources logged its second weekly inflow in three weeks while realizing a positive 5.00% on the week.
Conventional taxable-fixed income funds realized a weekly outflow of $7.4 billion—marking their tenth straight weekly outflow. The macro-group recorded a positive 1.15% on average—their first week of plus-side returns over the last three.
Conventional corporate-investment grade funds (-$3.6 billion), flexible funds (-$1.7 billion), and balanced funds (-$785 million) led the macro-group in outflows. Corporate-investment grade funds suffered their tenth consecutive week of outflows. The subgroup realized a positive 0.50% on the week.
Conventional corporate-high quality funds (+$13 million) were the only taxable fixed income conventional funds subgroup to report inflows over the week. This subgroup reported a positive 0.66% on the week as they logged their second consecutive week of inflows.
Municipal bond conventional funds (ex-ETFs) returned a negative 1.92% over the fund-flows week—their eleventh week of negative returns in 12. The subgroup experienced $2.2 billion in outflows, marking the tenth consecutive week of outflows. Conventional municipal bond funds have only experienced five weeks of inflows year to date.
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