by Jack Fischer.
The data sourced in the article below is derived from Lipper’s Global Fund Flows application which may differ slightly from the Lipper U.S. Fund Flow data due to timing and methodology. This new application can be found on LSEG Workspace.
During LSEG Lipper’s fund-flows week that ended October 18, 2023, investors were overall net sellers of fund assets (including both conventional funds and ETFs) for the fourth week in five, removing a net $106.3 billion—marking the seventeenth largest weekly outflow to date.
Money market funds (-$97.5 billion, +0.10%), equity funds (-$3.4 billion, -1.71%), taxable bond funds (-$2.9 billion, -1.36%), commodities funds (-$1.4 billion, +4.01%), mixed-assets funds (-$5445 million, -1.19%), tax-exempt bond funds (-$297 million, -1.36%), and alternative investment funds (-$182 million, +0.41%) all suffered outflows over the week. Money market funds realized their fifth largest weekly outflow on record.
At the close of LSEG Lipper’s fund-flows week, U.S. broad-based equity indices reported negative returns—the DJIA (-0.41%), Nasdaq (-2.53%), Russell 2000 (-2.51%), and S&P 500 (-1.42%) were all down for the week.
The Bloomberg Municipal Bond Total Return Index (-1.21%) recorded its tenth sub-zero return in 12 weeks. The Bloomberg U.S. Aggregate Bond Total Return Index (-2.01%) logged its fourth weekly loss in five.
Overseas indices traded down—the DAX (-3.14%), FTSE 100 (-1.76%), Nikkei 225 (-0.09%), and Shanghai Composite (-0.84%) all logged negative returns for the week.
The 10-two Treasury yield spread closed at its highest level since last October (-0.31) as the yield curve starts to flatten. The two- and 10-year Treasury yields rose over the week (+4.43% and +7.24%, respectively).
According to Freddie Mac, the 30-year fixed-rate average (FRM) rose for the sixth straight week—the weekly average is currently at 7.63%. Both the United States Dollar Index (DXY,+0.70%) and VIX (+16.29%) increased over the course of the week.
The CME FedWatch Tool currently has the likelihood of the Federal Reserve increasing interest rates by 25 basis points (bps) at 0.0%. This tool forecasted a 29.4% possibility of the same hike one month ago. The next meeting is scheduled for November 1, 2023.
Our fund-flows week kicked off on Thursday, October 12, with the Department of Labor (DOL) reporting September’s consumer price index (CPI). U.S. CPI increased 0.4% in September, down from a 0.6% increase in August. Core CPI, which excludes food and energy, remained stable at a month-over-month increase of 0.3%, but reportedly rose 4.1% year over year. Despite a hot reading, the Federal Reserve is expected to keep interest rates steady with Treasury yields continuing to rise and geopolitical conflict escalating. The report highlighted a 0.6% increase in the cost of shelter which accounted for more than half of the CPI rise. Gasoline prices slowed to a month-over-month increase of 2.1% after jumping 10.6% in August. The labor market also remained tight with the DOL reporting weekly initial claims for unemployment benefits were steady at a seasonally adjusted 209,000. The 10-year Treasury yield jumped 2.98% on the day, with equity markets falling—the Russell 2000 (-2.20%) was the biggest loser among the equity indices.
On Friday, October 13, U.S. Treasury yields fell on the day with the Israel-Gaza war continuing to escalate—the five- (-1.15%) and 10-year (-1.83%) were both down. Equity markets traded mostly down— the DJIA (+0.12%) was up, but the S&P(-0.50%), Russell 2000 (-0.84%), and Nasdaq (-1.23%) were all in the red. President of the Federal Reserve Bank of Philadelphia Partick Harker, a Federal Open Market Committee (FOMC) voting member, stated Friday that he does not expect interest rates will need to be raised any further.
On Monday, October 16, U.S. equity markets ended their two-day streak of losses with the S&P 500 (+1.06%) and Nasdaq (+1.20%) realizing their largest daily gains in slightly more than a week. The small-cap focused Russell 2000 (+1.59%) logged its largest daily gain since July 10. Treasuries saw a sell-off with yields rising across the board, led by the 30-year Treasury yield (+1.95%). The S&P 500 Value Index (+1.18%) recorded its largest daily gain since June 15 after banks kicked off earnings season with a strong start.
On Tuesday, October 17, retail sales increased 0.7% month over month, which beat the expectations of a 0.3% increase. August sales data was revised up (from +0.6% to +0.8%). With two strong months of retail sales numbers, economists are touting consumers for being more resilient than expected, which may lead to a better-than-expected Q3 growth rate. Overseas, the Israeli-Gaza war continued to intensify as President Joe Biden planned to arrive in Israel as a show of support. Treasury yields surged on the day—two- (+2.33%), five- (+3.22%), and 10-year (+2.72%) yields all jumped. Equity markets traded mixed with the Russell 2000 (+1.09%) realizing its second strong daily return.
Our fund-flows week wrapped up Wednesday, October 18, with the Department of Commerce reporting that U.S. single-family homebuilding starts increased 3.2%, with increases in the Midwest, West, and South. The Northeast reported a decrease of 19.0%. Permits for future construction of single-family homes increased by 1.8%, marking the highest rate since May 2022. Longer-dated yields rose on the day while equity markets fell sharply.
Exchange-traded equity funds recorded $2.2 billion in weekly net inflows, third straight week of attracting new capital. The macro-group posted a 1.62% loss on the week, its sixth week in the red over the last seven.
Large-cap ETFs (+861 million), multi-cap ETFs (+$536 million), and small-cap ETFs (+$476 million) attracted the only inflows among the equity ETF subgroups. Large-cap ETFs reported their fourth straight weekly inflow, despite their first negative weekly return (-1.69%) in three.
Sector equity ETFs (-$324 million), world sector equity ETFs (-$48 million), and mid-cap ETFs (-$36 million) suffered the largest weekly outflows under equity ETFs. Sector equity ETFs have realized eight weeks of outflows in the past 10 as they have realized seven weekly losses in eight. Lipper Utility ETFs (-$902 million) was the main attributor under our sector equity group.
All subgroups recorded negative returns on the week.
Over the past fund-flows week, the two top equity ETF flow attractors were iShares Russell Top 2000 Growth Index Fund (IWY, +$508 million) and Energy Select Sector SPDR Fund (CLE, +$472 million).
Meanwhile, the bottom two equity ETFs in terms of weekly outflows were Utilities Select Sector SPDR Fund Trust (XLU, -$746 million) and Invesco QQQ Trust Series 1 (QQQ, -$523 million).
Exchange-traded taxable fixed income funds observed a $762 million weekly inflow—the macro-group’s second weekly inflow in three. Fixed income ETFs reported a weekly return of negative 1.35% on average, their fourth week in the red in five.
Short/intermediate government & Treasury ETFs (+$1.1 billion), U.S. government & Treasury fixed income ETFs (+$921 million), and short/intermediate investment-grade ETFs (+$248 million) were the three top subgroups to see net inflows. Short/intermediate government & Treasury ETFs have logged 10 weeks of inflows over the last 11.
High yield ETFs (-$1.6 billion), emerging markets debt ETFs (-$249 million), and alternative bond ETFs (-$8 million) were the only subgroups under taxable bond ETFs to observe outflows. High yield ETFs have seen five consecutive weeks of outflows while only recording positive performance in one of those.
Municipal bond ETFs reported a $246 million inflow over the week, marking their sixth straight weekly inflow. The subgroup realized a negative 1.10% return—the fifth week of losses in six.
iShares MBS ETF (MBB, +$414 million) and SPDR Bloomberg 1-3 Month T-Bill ETF (BIL, +$408 million) attracted the largest amounts of weekly net new money for taxable fixed income ETFs.
On the other hand, iShares: iBoxx $High Yield Corporate Bond ETF (AGG, -$1.0 billion) and iShares: 1-5 Year Investment Grade Corporate Bond ETF (IGSB, -$674 million) suffered the largest weekly outflows under all taxable fixed income ETFs.
Conventional equity funds (ex-ETFs) witnessed weekly outflows (-$6.0 billion) for the sixty-sixth straight week. Conventional equity funds posted a weekly return of negative 1.81%, the sixth week of losses in seven.
Large-cap funds (-$1.1 billion), equity income funds (-$821 million), and developed international markets funds (-$749 million) were the top conventional equity fund subgroups to realize weekly outflows. Large-cap mutual funds logged their third straight weekly outflow, as they realized their first negative weekly performance (-1.61%) over the last three weeks.
No subgroup under equity mutual funds recorded weekly inflows.
Conventional taxable-fixed income funds realized a weekly outflow of $3.7 billion—marking their sixth consecutive weekly outflow. The macro-group logged a negative 1.36% on average—their fourth weekly loss in five.
Short/intermediate investment-grade funds (-$2.6 billion), general domestic taxable fixed income funds (-$405 million), and high yield funds (-$319 million) suffered the top outflows among conventional taxable fixed income subgroups over the trailing week. Short/intermediate investment grade funds have seen 10 weekly outflows in the last 11 weeks along with seeing four weeks of negative returns in five.
Government & Treasury fixed income funds (+$28 million) was the only subgroup to report inflows over the past week. This was the first weekly inflow in the past five weeks despite the subgroup logging its worst weekly return (-2.31%) since the week ending March 18, 2020.
Municipal bond conventional funds (ex-ETFs) returned a negative 1.42% over the fund-flows week—their fifth weekly loss in six weeks. The subgroup experienced a $543 million outflow, marking the eleventh straight weekly outflow.
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