by Tom Roseen.
Investors were net sellers of fund assets (including those of conventional funds and ETFs) for the first week in three, withdrawing a net $16.7 billion for the LSEG Lipper fund-flows week ended Wednesday, August 23. Fund investors were net sellers of equity funds (-$11.2 billion), money market funds (-$3.3 billion), taxable bond funds (-$1.7 billion), and tax-exempt fixed income funds (-$534 million) for the week.
Investors took their collective foot off the pedal during the fund-flows week as the 10-year Treasury yield witnessed relatively large swings ahead of the Federal Reserve Bank of Kansas City’s annual monetary policy symposium in Jackson Hole, Wyoming, and as investors awaited Nvidia’s (NVDA) Q2 earnings report, due out at the end of the flows week.
On the domestic equity side of the equation, the Nasdaq Composite (+1.83%) posted the strongest plus-side return of the broad-based U.S. indices, followed by the S&P 500 (+0.72%) and Russell 2000 (-0.08%). The Dow (-0.84%) was the laggard of the group. Overseas, the Nikkei 225 (+1.51%) rose to the top of the leaderboard of the often-followed broad-based international indices, followed by the Xetra DAX Total Return Index (-0.94%) and the FTSE 100 (-1.04%). Meanwhile, the Shanghai Composite (-2.31%) posted the largest market decline for the flows week.
For the fund-flows week, the Bloomberg U.S. Aggregate Bond Index (+0.64%) outpaced the Morningstar LSTA U.S. Leveraged Loan Index (+0.25%) and the Bloomberg Municipal Bond Index (-0.80%). While fed-funds futures traders priced in only a 17.5% chance that the Fed will hike its key lending rate at its September Federal Open Market Committee (FOMC) meeting—according to the CME FedWatch Tool, nervousness around the possibility of Fed Chair Jerome Powell taking a hawkish stance during the Fed’s Jackson Hole meeting led to a bit of volatility in the 10-year yield. Nonetheless, the 10-year Treasury yield finished lower for the week, falling nine basis points (bps)—settling at 4.19%—while the one-month Treasury yield rose two bps to close out the flows week at 5.54%. The U.S. Treasury yield curve remained inverted, with the two- and 10-year Treasury yield spread (-76 bps) widening by seven bps for the week. The 30-year Treasury yield witnessed the largest decline in yields, dropping 11 bps to 4.27%.
On Thursday, August 17, U.S. stocks fell for the third consecutive day as bond yields surged after the 10-year Treasury yield closed at 4.30%—its highest closing value since December 26, 2007, weighing on mega-cap tech stocks. The near-term inflation forecasting model of the Federal Reserve Bank of Cleveland estimated August headline CPI rising by 3.8% from a year earlier and a 0.8% rise for the month. Fanning the rise in interest rates, the minutes from the Fed’s July FOMC meeting showed policymakers could continue to hike interest rates in response to concerns that inflation could reaccelerate. In other news, first-time jobless claims fell by 11,000 to 239,000 for the week prior.
U.S. stocks ended mixed on Friday, August 18, on continued interest rate concerns and renewed China worries. Investors turned their attention to China’s second-largest developer, Evergrande, after it filed for bankruptcy protection in U.S. courts, raising concerns that troubles will spread to other sectors of the world’s second-largest economy. The 10-year Treasury yield declined four bps on the day to 4.26%.
The S&P 500 and Nasdaq snapped a four-day losing streak on Monday, August 21, despite the Dow losing some ground on the day. Investors, however, kept a keen eye on the deteriorating economic conditions in China and were underwhelmed by the People’s Bank of China cutting its one-year prime lending rate by 10 bps, sending the Shanghai Composite down 1.56% for the start of the week. The 10-year yield rose eight bps, closing at 4.34%.
Stocks generally closed lower on Tuesday, August 22, as investors awaited Fed Chair Powell’s Jackson Hole speech at the end of the week and reacted to a slide in bank issues after S&P Global downgraded five smaller bank stocks. Disappointing Q2 earnings reported from retailers Dick’s Sporting Goods (DKS) and Macy’s (M) weighed on the sector. In other news, the National Association of Realtors reported that July sales of previously owned homes fell by 2.2% to an annual rate of 4.07 million—a six-month low.
In a turn of the tide, the S&P 500 booked its strongest one-day gain in almost two months on Wednesday, August 23, after bond yields fell in Europe and the U.S. A recent report showed eurozone economic activity fell more than expected to a 33-month low. The HCOB Flash Eurozone Composite PMI Output Index fell to 47.0 from 48.6 in July. The 10-year Treasury yield fell 15 bps on the day after the August S&P Global flash U.S. services-sector index fell to a six-month low of 51 from 52.3 in July. The S&P U.S. manufacturing-sector index remained in contraction territory, declining to 47 from 49 in the prior month.
Exchange-Traded Equity Funds
Equity ETFs witnessed net outflows for the second week in three, handing back a little more than $7.8 billion for the most recent fund-flows week. Authorized participants (APs) were net sellers of domestic equity ETFs (-$7.7 billion), withdrawing money also for the second week in three, while nondomestic equity ETFs witnessed net outflows for the fourth week running, but handing back just $169 million this past week. Equity income ETFs (+$857 million) observed the largest net inflows of the equity ETF macro-groups for the fund-flows week, followed by small-cap ETFs (+$678 million) and mid-cap ETFs (+$390 million). Meanwhile, large-cap ETFs (-$6.8 billion) suffered the largest net outflows, bettered by the commodities-heavy, sector-other ETFs (-$1.6 billion) and sector-financial/banking ETFs (-$788 million) macro-groups.
iShares MSCI USA Quality Factor ETF (QUAL, +$568 million) and iShares Russell 2000 ETF (IWM, +$529 million) attracted the largest amounts of net new money of all individual equity ETFs. At the other end of the spectrum, SPDR S&P 500 ETF (SPY, -$7.0 billion) experienced the largest individual net redemptions and Technology Select Sector SPDR Fund (XLK, -$735 million) suffered the second largest net redemptions of the week.
Exchange-Traded Fixed Income Funds
For the second week in three, taxable fixed income ETFs experienced net inflows, taking in $333 million this week. APs were net purchasers of government-Treasury ETFs (+$2.4 billion), government-Treasury & mortgage ETFs (+$81 million), and corporate high-quality ETFs (+$2 million) while being net redeemers of corporate high-yield ETFs (-$648 million) and flexible ETFs (-$563 million).
iShares iBoxx $ High Yield Corporate Bond ETF (HYG, +$954 million), SPDR Bloomberg 1-3 Month T-Bill ETF (BIL, +$862 million), and iShares 0-3 Month Treasury Bond ETF (SGOV, +$744 million) attracted the largest amounts of net new money of all individual taxable fixed income ETFs. Meanwhile iShares 0-5 Year TIPS Bond ETF (STIP, -$1.1 billion) and SPDR Bloomberg High Yield Bond ETF (JNK, -$988 million) handed back the largest individual net redemptions for the week.
For the second week in a row, municipal bond ETFs witnessed net outflows, handing back $105 million this week. JPMorgan Ultra-Short Municipal Income ETF (JMST, +$43 million) witnessed the largest draw of net new money of the municipal bond ETFs, while iShares National Muni Bond ETF (MUB, -$147 million) experienced the largest net redemptions in the subgroup.
Conventional Equity Funds
Conventional fund (ex-ETF) investors were net sellers of equity funds for the eighty-first week in a row—redeeming $3.4 billion—with the macro-group posting a 0.48% market gain for the fund-flows week. Domestic equity funds—suffering net redemptions of slightly less than $2.8 billion—witnessed their thirty-fourth consecutive week of net outflows while posting a 0.49% market return on average for the fund-flows week. Nondomestic equity funds—posting a 0.44% weekly market rise on average—observed their twenty-seventh week of net outflows in a row, handing back slightly more than $594 million this week.
On the domestic equity side, fund investors were net redeemers of large-cap funds (-$1.4 billion) and mid-cap funds (-$784 million). Investors on the nondomestic equity side were net redeemers of global equity funds (-$321 million) and international equity funds (-$273 million) for the week.
Conventional Fixed Income Funds
For the second consecutive week, taxable bond funds (ex-ETFs) witnessed net outflows, handing back $2.0 billion this past week—while posting a 0.35% market gain on average for the fund-flows week. The corporate high-quality debt funds macro-group attracted the only draw of net money for the week—but took in just $1 million. Corporate high-yield funds (-$522 million) suffered the largest net redemptions, bettered by flexible funds (-$491 million) and corporate investment-grade debt funds (-$491 million).
The municipal bond funds group posted a 0.87% market decline on average during the fund-flows week (their fifth weekly market decline in a row) and suffered net outflows for the fourth consecutive week, handing back $429 million this week. High Yield Municipal Debt Funds (+$27 million) witnessed the largest net inflows of the macro-group. Meanwhile, General & Insured Municipal Debt Funds witnessed the largest net outflows, handing back $143 million.