December 1, 2022

U.S. Weekly FundFlows Insight Report: Exchange-Traded Equity Funds Report First Weekly Outflow in Over Two Months

by Jack Fischer.

During Refinitiv Lipper’s fund-flows week ended November 30, 2022, investors were overall net redeemers of fund assets (including both conventional funds and ETFs) for the first week in three, removing a net $4.7 billion.

Money market funds (+$15.4 billion) were the only macro-group to attract funds, while taxable funds (-$10.0 billion), equity funds (-$8.8 billion), and tax-exempt bond funds (-$1.4 billion) posted outflows.

Index Performance

At the close of Refinitiv Lipper’s fund-flows week, U.S. broad-based equity indices reported positive performance—the DJIA (+1.16%) posted its seventh straight week in the black.

The Bloomberg Municipal Bond Total Return Index (+0.63%) realized its fifth straight week with plus-side performance, as the Bloomberg U.S. Aggregate Bond Total Return Index (+0.23%) observed its third straight.

Overseas indices traded mixed, the Shanghai Composite (+1.92%) and FTSE 100 (+0.13%) were the only ones to appreciate over the week, while the DAX 30 (-0.96%) and Nikkei 225 (-0.38%) recorded losses.

Rates/Yields

The 10-two Treasury yield spread remained negative (-0.67), marking the one-hundred and seventh straight trading session with an inverted yield curve. As of Wednesday, November 30, investors will receive greater compensation for investing in the two-year Treasury note (4.37%) than the 10-year (3.70%).

According to Freddie Mac, the 30-year fixed-rate average (FRM) decreased for the third consecutive week—currently at 6.49%. The United States Dollar Index (DXY, +13.31%) fell, while the VIX (+6.09%) increased over the course of the week.

Market Recap

Our fund-flows week kicked off Friday, November 25 with Thursday’s Thanksgiving U.S. holiday. Equity markets traded mixed on the shortened trading day as the small-cap-focused Russell 2000 was the only broad-based market index to realize plus-side returns (+0.30%). Treasury yields, outside of the 30-year (+0.27%), fell on the day. Big news on the day was the Federal Trade Commission’s (FTC) move to block Microsoft’s (MSFT) $68.7 billion purchase of Activision Blizzard’s (ATVI) gaming company.

On Monday, November 28, equity markets suffered as concerns that COVID-19 restriction protests in China threaten to hurt supply chains as we enter the holiday season—Russell 2000 (-2.05%), Nasdaq (-1.58%), S&P 500 (-1.54%), and DJIA (-1.45%). According to Refinitiv Proprietary Research, of the 485 companies in the S&P 500 that have reported earnings to date for the third quarter of 2022, 70.7% have reported earnings above analyst estimates. Quarterly year-over-year earnings are expected to be 4.3%, excluding the energy sector, the year-over-year forecast is negative 3.5%. The Federal Reserve Bank President of New York, John Williams, said the central bank has “more work to do” and that policymakers “need to keep restrictive policy in place.” He expects that the current policy will remain in effect until at least next year.

On Tuesday, November 29, the Conference Board published its Consumer Confidence Index (CCI) which showed a drop from 102.2 to 100.2 in October, marking the lowest level since July. The Conference Board’s director of economic indicators, Lynn Franco, said the fall was likely due to the recent rise in gasoline prices. She added that consumer expectations of inflation were also at the highest levels since last July. Domestic equity markets traded mixed on the day—Russell 2000 (+0.31%), DJIA (+0.01%), Nasdaq (-1.58%), and S&P 500 (-1.54%). The 10-year Treasury yield rose 1.24%.

Our fund-flows week wrapped up Wednesday, November 30, with a slew of economic data. Payroll provider ADP announced private sector employment growth fell to its slowest pace in nearly two years. ADP reported companies added 127,000 jobs in November which was below economist forecasts. According to Mortgage Bankers Association’s (MBA) weekly survey, mortgage applications decreased by 0.8% from last week. The National Association of Realtors (NAR) reported there was a 4.6% decrease month over month in home contract signings in October. Fed Chair Jerome Powell also spoke as the central bank released its November Beige Book. Powell went on to say policymakers still need to see “substantially more evidence” of price decrease before they decide to cease rate hikes. He did however surprise markets saying that a soft landing was “very plausible.” Continuing on, he said:

“It makes sense to moderate the pace of our rate increases as we approach the level of restraint that will be sufficient to bring inflation down. The time for moderating the pace of rate increases may come as soon as the December meeting.”

U.S. equity markets surged on the day—Nasdaq (+4.41%), S&P 500 (+3.09%), Russell 2000 (+2.72%), and DJIA (+2.18%).

Exchange-Traded Equity Funds

Exchange-traded equity funds recorded $106 million in weekly net outflows, marking their first week of outflows in eight. The macro-group posted a positive return of 1.48% on the week.

Growth/value-large cap ETFs (-$1.7 billion), growth/value-small cap ETFs (-$489 million), and sector-technology ETFs (-$463 million) were the largest outflow subgroups under the macro-group. Growth/value-large cap ETFs realized positive weekly performance for the third straight week, despite logging back-to-back weekly outflows. Growth/value-small cap ETFs posted their first weekly outflow in four weeks as they also realized their third consecutive week of plus-size returns.

International equity ETFs (+$995 million), equity income funds ETFs (+$939 million), and sector-other ETFs (+$566 million) were the largest subgroup attractors of new capital over the week. International equity ETFs have seen 10 straight weeks of inflows as they report their fourth consecutive week of positive performance.

Over the past fund-flows week, the two equity ETF flow attractors were iShares: Core S&P 500 (IVV, +$860 million) and iShares: MSCI Emerging Markets ETF (EEM, +$713 million).

Meanwhile, the bottom two equity ETFs in terms of weekly outflows were Invesco QQQ Trust 1 (QQQ, -$2.9 billion) and iShares: Russell 2000 ETF (IWM, -$937 million).

Exchange-Traded Fixed Income Funds

Exchange-traded fixed income funds observed a net $1.8 billion weekly outflow—the macro-group’s first weekly outflow in four weeks. Fixed income ETFs reported a weekly return of positive 0.17% on average, its third straight week in the black.

Corporate-investment grade ETFs (-$2.2 billion), corporate-high yield ETFs (-$880 million), and government-Treasury & Mortgage ETFs (-$4 million) logged the top weekly outflows under taxable fixed income subgroups. Corporate-investment grade ETFs suffered their first weekly outflow in nine weeks despite three consecutive weeks of positive performance.

Government-Treasury ETFs (+$756 million), flexible funds ETFs (+$344 million), and international & global debt ETFs (+$124 million) posted the largest inflows under taxable fixed income ETFs. Government-Treasury ETFs have seen four consecutive weeks of inflows as they realize a gain of 0.26% on the week.

Municipal bond ETFs reported a $746 million inflow over the week, marking their sixth straight weekly inflow. The subgroup realized a positive 0.57% on average, their fifth plus-side performance in as many weeks.

iShares: 20+ Treasury Bond ETF (TLT, +$821 million) and iShares: Core US Aggregate Bond ETF (AGG, +$510 million) attracted the largest amounts of weekly net new money for taxable fixed income ETFs.

On the other hand, iShares: iBoxx $Investment Grade ETF (LQD, -$2.8 billion) and SPDR Bloomberg High Yield Bond ETF (JNK, -$348 million) suffered the largest weekly outflows under all taxable fixed income ETFs.

Conventional Equity Funds

Conventional equity funds (ex-ETFs) witnessed weekly outflows (-$7.6 billion) for the forty-third straight week. Conventional equity funds posted a weekly return of positive 1.69%.

Conventional growth/value-large cap funds (-$2.4 billion), international equity funds (-$2.2 billion), and global equity funds (-$715 million) were the largest subgroup outflows under conventional equity funds. Despite three straight weeks of inflows, growth/value-large cap funds have reported outflows for nine weeks straight.

No conventional equity subgroup logged a weekly inflow.

Conventional Fixed Income Funds

Conventional taxable-fixed income funds realized a weekly outflow of $8.3 billion—marking their fifteenth straight weekly outflow. The macro-group recorded a positive 0.59% on average—their fourth straight week observing plus-side returns.

Conventional corporate-investment grade funds (-$4.8 billion), flexible funds (-$1.5 billion), and corporate-high yield funds (-$833 million) led the macro-group in outflows. Corporate-investment grade funds suffered their fifteenth consecutive week of outflows. The subgroup realized a positive 0.43% on the week.

No conventional taxable fixed income subgroup logged a weekly inflow.

Municipal bond conventional funds (ex-ETFs) returned a positive 0.82% over the fund-flows week—their third week of gains in three. The subgroup experienced $2.1 billion in outflows, marking the fifteenth consecutive week of outflows. Conventional municipal bond funds have only experienced five weeks of inflows year to date.

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