During Refinitiv Lipper’s fund-flows week that ended February 1, 2023, investors were overall net redeemers of fund assets (including both conventional funds and ETFs) for the first week in six, removing a net of $10.7 billion.
Money market funds (-$8.3 billion), taxable bond funds (-$2.7 billion), and tax-exempt bond funds (-$362 million) each reported outflows, while equity funds (+$637 million) reported inflows.
Index Performance
At the close of Refinitiv Lipper’s fund-flows week, U.S. broad-based equity indices reported plus-side performance. The Nasdaq (+4.45%) and Russell 2000 (+3.73%) reported their fifth straight week of positive returns, while the DJIA (+1.03%) and S&P 500 (+2.56%) logged their fourth week of gains in five.
The Bloomberg Municipal Bond Total Return Index (+0.08%) and the Bloomberg U.S. Aggregate Bond Total Return Index (+0.49%) also recorded four weeks of positive performance in five.
Overseas indices traded mostly positive—Shanghai Composite (+1.12%), Dax 30 TR (+0.83%), Nikkei 225 (+0.10%), and FTSE 100 (-0.07%).
Rates/Yields
The 10-two Treasury yield spread remained negative (-0.71), marking the one-hundred-and-fifty-second straight trading session with an inverted yield curve.
According to Freddie Mac, the 30-year fixed-rate average (FRM) decreased for the fourth consecutive week and eleventh in the last 13—currently at 6.09%. Both the United States Dollar Index (DXY, -0.42%) and the VIX (-6.47%) fell over the course of the week.
Market Recap
Our fund-flows week kicked off on Thursday, January 26, with the U.S. Bureau of Economic Analysis reporting Q4 Gross Domestic Product (GDP) grew at an annual rate of 2.9% after increasing by 3.2% in Q3. The report attributes the growth to increases in private inventory investment, consumer spending, and government spending. The gains in Q4 were partially offset by decreases in residential fixed investments and exports. More positive news came from the most recent Department of Commerce report showing new single-family homes rose in December to their highest level since August—reaching an annual rate of 616,000. The median price fell from $459,000 to $442,100, marking the second consecutive month of declines. The Department of Labor (DOL) published its weekly unemployment claims report showing a decrease of 3,000 from the previous week to 183,000—prior year numbers were 214,000. Equity markets finished strong on the day—Nasdaq (+1.76%), S&P 500 (+1.10%), Russell 2000 (+0.67%), and DJIA (0.61%).
The calendar week ended Friday on a positive note with equity markets reporting their second straight day of gains—Nasdaq (+0.95%), Russell 2000 (+0.44%), S&P 500 (+0.25%), and DJIA (+0.08%). The Department of Commerce published its Personal Consumption Expenditures (PCE) Price Index detailing core-PCE, excluding energy and food, was up 0.3% last month to a 12-month rate of 4.4%, down from November’s 4.7% and marking the lowest annual rate since October 2021. The University of Michigan’s Consumer Sentiment Index rose, another sign of increasing optimism in the economy. According to Refinitiv Proprietary Research, of the 143 companies in the S&P 500 to report earnings thus far for Q4 2022, 67.8% have reported earnings above analyst estimates.
On Monday, January 30, equity markets retracted ahead of the Federal Reserve’s first policy meeting of the year and a big week in tech firm earnings releases—Nasdaq (-1.96%), Russell 2000 (-1.35%), S&P 500 (-1.30%), and DJIA (-0.77%). This was the Nasdaq’s worst daily performance since December 22, 2022. Treasury yields rose on the day led by the three-(+1.54%) and five-year (+1.71%) issues.
On Tuesday, January 31, the S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index reported that home prices fell in November by 0.3%, down from October’s 9.2% increase, but still up 7.7% from last year. The International Monetary Fund (IMF) updated its World Economic Outlook now forecasting an increase of 2.9% this year, up 20 basis points (bps) from the October estimate. Equity markets ended the day strong, with the Russell 2000 (+2.45%) leading the way. The two-year Treasury yield fell 1.27%.
Our fund-flows week wrapped up Wednesday, February 1, with the Fed raising interest rates by 25 bps, the Fed’s second straight step down in rate hikes. In December, the central bank rose rates by 50 bps following four-straight hikes of 75 bps. Wednesday’s jump now puts the Fed funds rate at the range of 4.5% to 4.75%. Fed officials still maintain that future increases to interest rates will be necessary to get inflation back down to the central bank’s target of 2%. Fed Chair Jerome Powell said, “(We) will need substantially more evidence to be confident that inflation is on a sustained, downward path.” Equity markets erased early losses—Nasdaq (+2.00%), Russell 2000 (+1.49%), S&P 500 (+1.05%), DJIA (+0.02%). The 10-year Treasury yield fell by 3.71% on the day.
Exchange-Traded Equity Funds
Exchange-traded equity funds recorded $4.6 billion in weekly net inflows, marking the second straight week of inflows. The macro-group posted a gain of 2.19% on the week.
International equity ETFs (+$3.1 billion), equity income funds ETFs (+$1.8 billion), and growth/value-small cap ETFs (+$745 million) were the top subgroups to see inflows over the week. International equity ETFs have seen six straight weeks of inflows and four consecutive weeks of inflows of more than $3.0 billion. Their four-week inflow moving average is the fourth largest on record. Equity income funds ETFs have remained the hottest subgroup under equity ETFs; the subgroup has amassed 31 weeks of inflows in 32. Their four-week flow moving average has remained positive for 123 straight weeks. The subgroup reported an average performance of positive 1.57%.
Growth/value-large cap ETFs (-$1.7 billion), sector-real estate ETFs (-$295 million), and sector-technology ETFs (-$230 million) were the largest outflows under the macro-group. Growth/value-large cap ETFs realized positive weekly performance (+2.87 %) for the fourth week in five as they posted their fourth weekly outflow in five. Sector-real estate funds have suffered three weeks of outflows in four despite back-to-back weeks of gains.
Over the past fund-flows week, the top two equity ETF flow attractors were JPMorgan: Beta BuildersEurope (BBEU, +$908 million) and JPMorgan: Equity Premium Income (JEPI, +$889 million).
Meanwhile, the bottom two equity ETFs in terms of weekly outflows were SPDR S&P 500 ETF (SPY, -$1.7 billion) and iShares Russell 1000 Growth ETF (IWF, -$1.0 billion).
Exchange-Traded Fixed Income Funds
Exchange-traded fixed income funds observed a net $4.5 billion weekly outflow—the macro-group’s first weekly outflow in six. Fixed income ETFs reported a weekly return of positive 0.24% on average.
Flexible funds ETFs (+$848 million), international & global debt ETFs (+$134 million), and government-Treasury & Mortgage ETFs (+$87 million) logged the top weekly inflows under taxable fixed income subgroups. Flexible funds ETFs have observed five straight weeks of inflows despite back-to-back weeks of sub-zero performance.
Government-Treasury ETFs (-$2.2 billion), corporate-investment grade ETFs (-$1.9 billion), and corporate-high yield ETFs (-$1.5 billion) were the top subgroups to observe weekly outflows. Government-Treasury funds saw their largest weekly outflow since the fund-flows week ending July 27, 2022. The subgroup has realized weekly gains in four of the last five weeks.
Municipal bond ETFs reported a $714 million outflow over the week, marking their second straight weekly outflow. The subgroup realized a positive 0.06% on average, their fifth plus-side return in as many weeks.
ProShares: UltraPro Short QQQ ETF (SQQQ, +$454 million) and iShares: 5-10 Investment Grade Corporate Bond ETF (IGIB, +$227 million) attracted the largest amounts of weekly net new money for taxable fixed income ETFs.
On the other hand, iShares: iBoxx $Investment Grade Corporate Bond ETF (LQD, -$937 million) and SPDR Bloomberg 1-3 Month T-Bill ETF (BIL, -$738 million) suffered the largest weekly outflows under all taxable fixed income ETFs.
Conventional Equity Funds
Conventional equity funds (ex-ETFs) witnessed weekly outflows (-$3.9 billion) for the fifty-second straight week. Conventional equity funds posted a weekly return of 2.15%.
Growth/value-large cap (-$2.3 billion), international equity (-$1.1 billion), and growth/value-aggressive cap (-$295 million) were the largest subgroup outflows under conventional equity funds. Growth/value-large cap funds logged their sixth straight weekly outflow. The subgroup’s four-week flow moving average has remained negative for 54 consecutive weeks.
Sector-other (+$231 million), equity income funds (+$93 million), and sector-real estate (+$64 million) were the top weekly inflows under equity mutual funds. Sector-other funds have reported three weeks of both inflows and positive performance in the last four.
Conventional Fixed Income Funds
Conventional taxable-fixed income funds realized a weekly inflow of $1.8 billion—marking their fourth straight weekly inflow. The last time they saw four straight weeks of inflows was the first four weeks of 2022. The macro-group recorded a positive 0.77% on average—their fifth straight week of gains.
Conventional corporate-investment grade funds (+$1.3 billion), government-Treasury & mortgage (+$233 million), and government-mortgage funds (+$222 million) led the macro-group in inflows. Corporate-investment grade funds recorded their fourth consecutive week of inflows while observing the largest four-week inflow moving average since the fund-flow week ending September 29, 2021. The subgroup realized a positive 0.66% on the week, marking the fourth week of gains in five.
Flexible funds (-$120 million), government-Treasury funds (-$91 million), and balanced funds (-$49 million) reported the largest weekly outflows under taxable fixed income conventional funds. Flexible funds suffered their first weekly outflow in four weeks, despite realizing five consecutive weeks of plus-side performance.
Municipal bond conventional funds (ex-ETFs) returned a positive 0.27% over the fund-flows week—their third week of gains in four. The subgroup experienced $352 million in inflows, marking the fourth straight week of net new capital. Conventional municipal bond funds only experienced five weeks of inflows in 2022.
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