January 19, 2023

U.S. Weekly FundFlows Insight Report: International and Corporate Debt Funds Return to the Spotlight

by Jack Fischer.

During Refinitiv Lipper’s fund-flows week that ended January 18, 2023, investors were overall net purchasers of fund assets (including both conventional funds and ETFs) for the fourth week in a row, adding in a net $202 million.

Both money market funds (-$5.5 billion) and equity funds (-$4.1 billion) reported outflows, while tax-exempt bond funds (+$1.5 billion) and taxable funds (+$8.3 billion) posted inflows.

Index Performance

At the close of Refinitiv Lipper’s fund-flows week, U.S. broad-based equity indices reported mixed performance. The Nasdaq (+0.23%) and Russell 2000 (+0.56%) reported their third straight week of plus-side performance, while the DJIA (-1.99%) and S&P 500 (-1.03%) logged their first week of negative performance in three.

The Bloomberg Municipal Bond Total Return Index (+1.06%) and the Bloomberg U.S. Aggregate Bond Total Return Index (+1.25%) recorded their third consecutive week of positive performance.

Overseas indices traded positive—Shanghai Composite (+2.21%), Dax 30 TR (+2.30%), FTSE 100 (+3.60%), and Nikkei 225 (+4.62%) all reported gains.

Rates/Yields

The 10-two Treasury yield spread remained negative (-0.70), marking the one-hundred-and-forty-second straight trading session with an inverted yield curve.

According to Freddie Mac, the 30-year fixed-rate average (FRM) decreased for the third consecutive week—currently at 6.15%. Both the United States Dollar Index (DXY, -0.80%) and the VIX (-3.78%) fell over the course of the week.

Market Recap

Our fund-flows week kicked off on Thursday, January 12, with the Department of Labor (DOL) reporting the Consumer Price Index (CPI) for December declined 0.1%. Year-over-year CPI increased by 6.5%, which is down from November’s 12-month increase of 7.1%, marking the lowest annual gain since October 2021. Core-CPI, less energy and food, rose 0.3% in December and 5.7% from last year, which was the lowest year-over-year gain of 2022. The DOL also published its weekly unemployment data showing a drop in initial claims of 15,000 from the prior week, leading to a four-week moving average of 206,000. Equity markets rallied on the good news—Russell 2000 (+1.74%), Nasdaq (+0.64%), DJIA (+0.64%), and S&P 500 (+0.34%). Treasury yield fell on the day, with the 10-year Treasury yield decreasing by 3.07.

The calendar week ended Friday, January 13, with the kick-off of earnings season. The big banks reported better-than-expected quarterly results—JPMorgan Chase (JPM), Bank of America (BAC), Citigroup (C), and Wells Fargo (WFC) all saw shares rise on the day. The preliminary January University of Michigan Index of Consumer Sentiment (MCSI) increased by more than expected as well. The index rose 8.2% to 64.6 as investors continue to forecast an easing of future inflation. Equity markets ended the week strong, led by the Nasdaq (+0.71%). The two- and three-year Treasury yields rose 2.49% and 2.34%, respectively.

On Monday, January 16, markets were closed in recognition of Martin Luther King Jr. Day.

On Tuesday, January 17, a Bank of America survey saw that 68% of respondents anticipate a recession, down from November’s 77%. Roughly 50% of the participants are forecasting weaker global economic conditions in 2023, marking the most optimistic level in the past year. The survey also showed that more than 50% now believe interest rates are heading lower, compared to September’s 14%. More tech layoffs were announced as Microsoft (MSFT) said it was laying off nearly 11,000, or 5%, of its workforce. This announcement followed similar news from Salesforce (CRM), Amazon (AMZN), and Meta Platforms (META). Equity markets traded mixed on the day, with the Nasdaq (+0.14%) rising and the S&P 500 (-0.20%) falling.

Our fund-flows week wrapped up Wednesday, January 18, with the DOL reporting December’s Producer Price Index (PPI). The index fell 0.5% over the month, following a 0.2% gain in November. December’s monthly decline was the largest since April 2020. PPI rose 6.2% year over year, also down from November’s annual figure (+7.3%). Core-PPI, less food and energy, rose month over month (+0.1%), but the 12-month rate fell from an increase of 4.9% to an increase of 4.6%. Weekly mortgage applications increased 27.9% from the prior week according to the Mortgage Bankers Association—mortgage rates fell to their lowest level since September 2022. The U.S. Census Bureau reported that retail trade sales were down 1.2% in November but are 5.2% higher than last year—food services and drinking places were up 12.1% from a year ago. Equity markets fell on the day, led by the DJIA (-1.81%). The 10-year Treasury yield fell by 4.53%.

Exchange-Traded Equity Funds

Exchange-traded equity funds recorded $2.1 billion in weekly net outflows, marking the second week of outflows in three. The macro-group posted a loss of 0.21% on the week.

Growth/value-large cap ETFs (-$5.7 billion), convertible & preferreds ETFs (-$673 million), and sector-other ETFs (-$367 million) were the largest outflows under the macro-group. Growth/value-large cap ETFs realized negative weekly performance (-0.93%) for the first week in three as they posted their third weekly outflow in a row. Convertible & Preferreds ETFs celebrated their record-setting weekly outflow this week as they have seen three consecutive weeks of outflows. Sector-other funds have suffered six weeks of outflows over the last seven.

International equity ETFs (+$3.3 billion), equity income funds ETFs (+$772 million), and growth/value-small cap ETFs (+$682 million) were the top subgroups to see inflows over the week. International equity ETFs have seen four straight weeks of inflows and back-to-back weeks of inflows of more than $3.2 billion. Equity income funds ETFs have remained the hottest subgroup under equity ETFs; the subgroup has amassed 30 straight weeks of inflows. The subgroup reported an average performance of negative 1.88%.

Over the past fund-flows week, the top two equity ETF flow attractors were iShares: Core MSCI Emerging Markets (IEMG, +$1.5 billion) and iShares: MSCI EAFE Growth (EFG, +$616 million).

Meanwhile, the bottom two equity ETFs in terms of weekly outflows were Invesco QQQ Trust 1 (QQQ, -$2.3 billion) and iShares: MSCI Emerging Markets Minimum Volatility Factor (EEMV, -$1.6 billion).

Exchange-Traded Fixed Income Funds

Exchange-traded fixed income funds observed a net $6.8 billion weekly inflow—the macro-group’s fourth inflow in a row. Fixed income ETFs reported a weekly return of positive 0.98% on average, its third consecutive week of gains.

Corporate-investment grade ETFs (+$1.9 billion), flexible funds ETFs (+$1.8 billion), and international & global debt ETFs (+$1.6 billion) logged the top weekly inflows under taxable fixed income subgroups. After posting their second-largest weekly inflow on record, corporate-investment grade ETFs reported their fourth straight inflow. The subgroup realized a gain of 0.97%.

Government-Treasury ETFs (-$14 million) and balanced funds ETFs (-$13 million) were the only subgroups to observe weekly outflows. Government-Treasury funds saw their first weekly outflow in five weeks, despite three straight weeks of positive performance.

Municipal bond ETFs reported a $144 million inflow over the week, marking their fourth straight weekly intake and twelfth in the last 13. The subgroup realized a positive 0.71% on average, their third plus-side return in as many weeks.

iShares: JPM USD Emerging Markets Bond ETF (EMB, +$1.4 billion) and iShares: MBS ETF (MBB, +$1.3 billion) attracted the largest amounts of weekly net new money for taxable fixed income ETFs.

On the other hand, iShares: US Treasury Bond ETF (GOVT, -$1.9 billion) and iShares: 0-5 High Yield Corporate Bond ETF (SHYG, -$689 million) suffered the largest weekly outflows under all taxable fixed income ETFs.

Conventional Equity Funds

Conventional equity funds (ex-ETFs) witnessed weekly outflows (-$2.0 billion) for the fiftieth straight week. Conventional equity funds posted a weekly return of negative 0.04%.

Growth/value-large cap (-$779 million), growth/value-aggressive cap (-$495 million), and global equity (-$313 million) were the largest subgroup outflows under conventional equity funds. Growth/value-large cap funds logged their fourth straight weekly outflow. The subgroup’s four-week flow moving average has remained negative for 52 consecutive weeks.

Sector-other (+$35 million), growth/value-small cap (+$25 million), and sector-energy (+$19 million) were the top weekly inflows under equity mutual funds. Sector-other funds have reported back-to-back weeks of both inflows and positive performance.

Conventional Fixed Income Funds

Conventional taxable-fixed income funds realized a weekly inflow of $1.5 billion—marking only their second weekly inflow in the last 22 weeks. The macro-group recorded a positive 0.69% on average—their third straight week of gains.

Conventional corporate-investment grade funds (+$1.1 billion), flexible funds (+$280 million), and government-mortgage funds (+$204 million) led the macro-group in inflows. Corporate-investment grade funds recorded their second consecutive week of inflows while observing the largest weekly inflow since the first week of January 2021. The subgroup realized a positive 1.02% on the week, marking the third week in a row of gains.

Balanced funds (-$199 million), government-Treasury funds (-$25 million), and corporate-high quality funds (-$1 million) reported the largest weekly outflows under taxable fixed income conventional funds. Balanced funds have seen 15 straight weeks of outflows as they suffered their first week of sub-zero performance in three (-0.20%).

Municipal bond conventional funds (ex-ETFs) returned a positive 0.88% over the fund-flows week—their third week of gains in three. The subgroup experienced $1.4 billion in inflows, marking the second straight week of net new capital. Conventional municipal bond funds only experienced five weeks of inflows in 2022.

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