by Tom Roseen.
Investors were net purchasers of fund assets (including those of conventional funds and ETFs) for the first week in three, injecting a net $17.5 billion for the LSEG Lipper fund-flows week ended Wednesday, October 25. However, the headline number is a bit misleading.
Fund investors were net purchasers of money market funds (+$22.2 billion) and commodity funds (+$1.0 billion) while being net redeemers of fixed income funds (-$2.0 billion), alternatives funds (-$1.6 million), equity funds (-$1.2 billion), and mixed-assets funds (-$895 million) for the week.
The data sourced in this article were derived from the LSEG Lipper Global Fund Flows application, which differ from Lipper U.S. Fund Flow data because of a change in methodology. This new application can be found on LSEG Workspace.
Despite a good beginning to the Q3 corporate earnings season, rising oil prices and yields, accompanied by growing geopolitical and humanitarian concerns in the Middle East, weighed on U.S. investors during the fund-flows week.
On the domestic equity side of the equation, the Dow Jones Industrial Average (-1.87%) did the best job mitigating losses of the often-followed broad-based U.S. indices, followed by the S&P 500 (-2.96%) and the Nasdaq Composite (-3.70%). The Russell 2000 (-4.48%) posted the largest losses of the group. Overseas, the DAX Total Return Index (-0.89%) rose to the top of the leaderboard, witnessing the smallest declines of the often-followed broad-based international indices, followed by the FTSE 100 (-2.30%) and the Nikkei 225 (-2.51%). Meanwhile, the Shanghai Composite (-2.81%) posted the largest market decline of the subgroup for the flows week.
The Bloomberg U.S. Aggregate Bond Index (-0.08%) tempered losses better than the Morningstar LSTA U.S. Leveraged Loan Index (-0.09%) and the Bloomberg Municipal Bond Index (-0.44%) for the fund-flows week. For the week, the Treasury yield curved flattened a bit as longer-dated yields rose, with the 10-year Treasury yield finishing up 13 basis points (bps)—settling at 4.95%—while the one-month Treasury yield declined one bp to 5.56%. The U.S. Treasury yield curve remained inverted, with the two- and 10-year Treasury yield spread (-13 bps) narrowing by 15 bps during the week.
On Thursday, October 19, U.S. stocks finished lower, with the Dow declining 250.91 points on the day after Federal Reserve Board Chair Jerome Powell said the Fed remains resolute in returning inflation to 2% over time and may need to do more to keep inflation in check, but policymakers will proceed with caution. Treasury yields rose for a fourth consecutive day, closing up seven bps to 4.98%—its highest closing value since July 19, 2007—after investors contemplated the implications of first-time jobless claims falling to a nine-month low of 198,000 for the week prior. In other news, previously owned home sales fell 2% in September as rocketing mortgage rates kept buyers on the sidelines.
U.S. stocks ended lower on Friday, October 20, after a week of rising bond yields, worries over the war in the Middle East intensified, and oil prices continued to rise. For the week, the 10-year Treasury yield rose 30 bps to close at 4.93%, off its high on Thursday, with the S&P 500 snapping a two-week winning streak. The just shy of two-week war between Israel and Hamas, along with hawkish comments by Cleveland Fed President Loretta Mester, cast a pall over the markets. Mester said she is in the camp of one more interest-rate hike this year but also indicated the Fed is “nearing the end of its phase” of its hiking campaign. While front-month crude oil future prices ended down 0.7% on the day, they rose 1.2% for the week, settling at $88.75/bbl., as investors contemplated how the Middle East war might spill over to other parts of the region, impacting the supply of crude oil and increasing the human carnage.
The S&P 500 posted its longest losing streak of 2023 on Monday, October 23, falling for the fifth straight trading session despite the 10-year Treasury yield pulling back to 4.86% from its high last Thursday. Investors were keeping a keen eye on the Q3 earnings season and had hopes that there could be some sort of resolution to the Israel-Hamas war. Front-month crude oil future prices declined 3.7% for the day, closing at $85.49/bbl. According to our proprietary research team colleagues, using LSEG I/B/E/S data, of the 86 companies in the S&P 500 that have reported Q3 earnings thus far, 77.9% beat analyst expectations.
U.S. stocks reversed course on Tuesday, October 24, with the Dow snapping its four-day losing streak—gaining a little over 204 points on the day—after several blue-chip companies’ Q3 earnings came in stronger than expected. In other news, the October S&P flash U.S. services-sector business activity index rose to 50.9, up from the 50.1 reading in September, while its flash U.S. manufacturing purchasing managers index rose to 50 from its September reading of 49.8.
All three broad-based indices took it on the chin on Wednesday, October 25, after Alphabet (GOOGL) and Microsoft (MSFT) delivered a mixed bag of earnings, pushing the Nasdaq Composite into correction territory—declining 10.70% from its closing high on July 19, 2023. Alphabet’s Q3 earnings report, while beating overall revenue and earnings estimates, showed disappointing performance for its cloud-computing business—sending the stock price tumbling for the day. In contrast, Microsoft topped analysts’ earnings estimates as revenue for Azure and other cloud services was up 29%. In other news, the long end of the Treasury yield curve rose, with the 10-year Treasury yield jumping 12 bps to finish off the fund-flows week at 4.95%
Exchange-Traded Equity Funds
Equity ETFs witnessed net inflows for the fourth consecutive week, attracting a little less than $3.9 billion for the most recent fund-flows week. Authorized participants (APs) were net purchasers of domestic equity ETFs (+$4.6 billion), injecting money also for the fourth week in a row, while nondomestic equity ETFs witnessed net outflows for the second week in three, handing back $755 million this past week.
Large-cap ETFs (+$4.9 billion) observed the largest net inflows of the equity ETF macro-groups for the fund-flows week, followed by world sector equity ETFs (+$745 million) and domestic sector equity ETFs (+$608 million). Meanwhile, developed international markets ETFs (-$1.7 billion) suffered the largest net outflows, bettered by the multi-cap ETFs (-$998 million) and mid-cap ETFs (-$551 million) macro-groups.
Exchange-Traded Alternatives, Commodities, and Mixed-Assets Funds
Commodity ETFs (+$1.1 billion) witnessed the only net inflows of the other equity-based macro-classifications, followed by the mixed-assets ETFs (-$294 million) and alternatives ETFs (-$1.2 billion) macro-classifications for the week.
iShares Core S&P 500 ETF (IVV, +$2.9 billion) and iShares S&P 100 ETF (OEF, +$2.0 billion) attracted the largest amounts of net new money of all individual equity and equity-based ETFs. At the other end of the spectrum, iShares MSCI EAFE Growth ETF (EFG, -$1.5 billion) experienced the largest individual net redemptions and iShares MSCI USA Min Vol Factor ETF (USMV, -$1.2 billion) suffered the second largest net redemptions of the week.
Exchange-Traded Fixed Income Funds
For the third consecutive week, taxable fixed income ETFs experienced net inflows, taking in $3.2 billion this week. APs were net purchasers of government & Treasury fixed income ETFs (+$3.8 billion), short/intermediate investment-grade debt ETFs (+$589 million), and short/intermediate government & Treasury ETFs (+$108 million) while being net redeemers of general domestic taxable fixed income ETFs (-$870 million) and emerging markets debt ETFs (-$261 million).
iShares 20+ Year Treasury Bond ETF (TLT, +$2.3 billion), SPDR Bloomberg 1-3 Month T-Bill ETF (BIL +$1.3 billion), and iShares MBS ETF (MBB, +$602 million) attracted the largest amounts of net new money of all individual taxable fixed income ETFs. Meanwhile, iShares TIPS Bond ETF (TIP, -$801 million) and iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD, -$719 million) handed back the largest individual net redemptions for the week.
For the seventh consecutive week, municipal bond ETFs witnessed net inflows, taking in $236 million this week. SPDR Nuveen Bloomberg Municipal Bond ETF (TFI, +$116 million) witnessed the largest draw of net new money of the municipal bond ETFs, while iShares Short-Term National Muni Bond ETF (SUB, -$159 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-ninth week in a row—redeeming $5.1 billion—with the macro-group posting a 3.15% market loss for the fund-flows week. Domestic equity funds—suffering net redemptions of slightly more than $3.9 billion—witnessed their ninetieth consecutive week of net outflows while suffering a 3.63% market decline on average for the fund-flows week. Nondomestic equity funds—posting a 2.24% weekly market drubbing on average—observed their thirty-third week of net outflows in a row, handing back slightly more than $1.2 billion this week.
On the domestic equity side, fund investors were net redeemers of multi-cap funds (-$1.1 billion), large-cap funds (-$890 million), and mid-cap funds (-$698 million). Investors on the nondomestic equity side were net sellers of emerging markets equity funds (-$443 million) and developed international markets funds (-$354 million) for the week.
Conventional Alternatives, Commodities, and Mixed-Assets Funds
Commodities funds (-$83 million) witnessed the smallest net outflows of the other equity-based macro-classifications, followed by the alternative equity funds (-$348 million) and mixed-assets funds (-$601 million) macro-classifications for the week.
Conventional Fixed Income Funds
For the seventh consecutive week, taxable bond funds (ex-ETFs) witnessed net outflows, handing back $4.3 billion this past week—while posting a 0.01% market return on average for the fund-flows week. The government & Treasury fixed income funds macro-group witnessed the largest net inflows for the week—but taking in only $71 million, followed by alternative bond funds (+$64 million) and emerging markets debt funds (-$100 million). Short/intermediate investment-grade debt funds (-$2.4 billion) suffered the largest net redemptions, bettered by general domestic taxable fixed income funds (-$780 million) and high-yield funds (-$756 million).
The municipal bond funds group posted a 0.41% market loss on average during the fund-flows week (their second weekly market decline in a row) and suffered net outflows for the twelfth consecutive week, handing back $1.2 billion this week. The New Jersey Municipal Debt Funds (+$9 million) and California Short-Intermediate Municipal Debt Funds (+$230,000) classifications witnessed the only net inflows of the group. The General & Insured Municipal Debt Funds classification witnessed the largest net outflows of the group, handing back $294 million, bettered by High Yield Municipal Debt Funds (-$217 million).
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