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 4, 2023, investors were overall net purchasers of fund assets (including both conventional funds and ETFs) for the first week in three, adding a net $32.9 billion.
Taxable bond funds (-$6.5 billion, -0.49%, setting a new outflow record for this year), equity funds (-$1.9 billion, -1.03%), tax-exempt bond funds (-$1.3 billion, -0.79%), alternative investment funds (-$992 million, +0.35%), mixed-assets funds (-$552 million, -1.17%), and commodities funds (-$482 million, -4.07%) all suffered outflows over the week. Money market funds (+$44.5 million, +0.25%) was the only asset type to attract new capital for the second straight week.
At the close of LSEG Lipper’s fund-flows week, U.S. broad-based equity indices reported mixed returns—the DJIA (-1.25%), Nasdaq (+1.09%), Russell 2000 (-2.80%), and S&P 500 (-0.25%). The Russell 2000 has reported weekly losses in 10 of the last 11 weeks.
The Bloomberg Municipal Bond Total Return Index (-0.61%) recorded its ninth sub-zero return in 10 weeks. The Bloomberg U.S. Aggregate Bond Total Return Index (-0.62%) logged its third straight weekly loss.
Overseas indices traded mixed—the DAX (-0.95%), FTSE 100 (-2.54%), and Nikkei 225 (-5.37%) were all down, while the Shanghai Composite (+0.16%) was up for the week.
The 10-two Treasury yield spread closed at its highest level since last October (-0.32) but has remained negative for more than one year. The two-year Treasury yield fell over the week (-1.62%), while the 10-year yield rose 2.60%.
According to Freddie Mac, the 30-year fixed-rate average (FRM) rose for the fourth straight week—the weekly average is currently at 7.49%. Both the United States Dollar Index (DXY,+0.12%) and VIX (+1.94%) 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 24.7%. This tool forecasted a 19.3% possibility of the same hike one week ago. The next meeting is scheduled for November 1, 2023.
Our fund-flows week kicked off on Thursday, September 28, with equity markets starting off on a good note—the Russell 2000 (+0.87%), Nasdaq (+0.83%), S&P 500 (+0.59%), and DJIA (+0.35%) were all in the black. Treasury yields fell across the curve, with the two-year falling 1.46% on the day. The Bureau of Economic Analysis reported that real gross domestic product (GDP) increased at an unrevised annual rate of 2.1% during the second quarter of 2023. The report stated that the rise in real GDP was reflected by increases in nonresidential fixed investment, consumer spending, and state and local government spending. Real disposable personal income increased 3.5% during the quarter. The Department of Labor showed that initial claims for unemployment benefits increased to 204,000, lower than economist forecasts.
On Friday, September 29, the personal consumption expenditures (PCE) price index was released that showed a 0.1% increase from last month in the core index, which excludes food and energy. The monthly increase came after a 0.2% rise in July and also marks the smallest gain since November 2000. PCE excluding food, energy, and housing also rose at a modest pace (+0.1%) after it increased 0.5% in July. Equity markets traded mixed—the Nasdaq (+0.14%) was up, while the S&P 500 (-0.27%), DJIA (-0.47%), and Russell 2000 (-0.51) were all down. Treasury yields fell for the second straight trading session as we were heading into the weekend uncertain of yet another potential government shutdown.
On Monday, October 2, we learned the U.S. Senate passed a 45-day spending bill over the weekend, averting a shutdown. President Joe Biden signed the legislation giving more time for Congress to negotiate a 2024 budget. Good news came from the manufacturing data as the Institute for Supply Management (ISM) reported manufacturing PMI rose from 47.6 to 49.0, marking the third straight month of improvement. Spending on construction increased 7.4% year over year with both private construction (+0.5%) and residential construction (+0.6%) rising month over month. Equity markets traded mixed—the Nasdaq (+0.67%) and S&P 500 (+0.01%) were in the black, while the DJIA (-0.22%) and Russell 2000 (-1.58%) were in the red. The 10-year Treasury yield spiked 2.49% on the day.
On Tuesday, October 3, the Department of Labor published its Job Openings and Labor Turnover Survey (JOLTS) report. The report showed job openings in the U.S. increased during the month of August, ending a three-month streak of declines. Layoffs fell over the month while quits increased. Despite there being about 1.51 job openings for every unemployed person, hiring only increased by 35,000. The House of Representatives voted to oust U.S. House Speaker Kevin McCarthy just days after the stopgap spending bill was passed. The move represents the first time in history that the House has removed its leader. The 10-year Treasury yield increased 2.54%, while equity markets slid, led by the Nasdaq (-1.87%).
Our fund-flows week wrapped up Wednesday, October 4, with equity markets ending the week on a positive note—the Nasdaq (+1.35%), S&P 500 (+0.81%), DJIA (+0.39%), and Russell 2000 (+0.11%) were all up. Treasury yield fell for the first time in three days, with the two-year yield falling 1.94%. The Mortgage Bankers Association reported that mortgage applications in the U.S. fell by 6% over the prior week, marking the sharpest decline since April. Also on the day, ADP published its employment report highlighting the private sector added a net 89,000 jobs last month, the slowest pace of growth since January 2021.
Exchange-traded equity funds recorded $4.7 billion in weekly net inflows, marking the first weekly inflow in three. The macro-group posted a 1.07% loss on the week, its fifth consecutive week in the red.
Large-cap ETFs (+3.3 billion), equity income ETFs (+$1.7 billion), and developed global markets ETFs (+$846 million) attracted the only inflows among the equity ETF subgroups. Large-cap ETFs reported their second straight weekly inflow while ending a four-week stretch of negative returns (+0.11%).
Sector equity ETFs (-$1.4 billion), emerging markets equity ETFs (-$611 million), and mid-cap ETFs (-$221 million) suffered the largest weekly outflows under equity ETFs. Sector equity ETFs have realized five straight weeks of outflows paired with five straight weeks of negative returns. Lipper Consumer Goods ETFs (-$636 million) was the main attributor under our sector equity group.
All subgroups outside of large-cap ETFs recorded negative returns on the week.
Over the past fund-flows week, the two top equity ETF flow attractors were iShares Core S&P 500 ETF (IVV, +$7.8 billion) and JPMorgan Global Select Equity ETF (JGLO, +$834 million).
Meanwhile, the bottom two equity ETFs in terms of weekly outflows were SPDR S&P 500 ETF Trust (SPY, -$6.5 billion) and iShares MSCI Emerging Markets ETF (EEM, -$745 million).
Exchange-traded taxable fixed income funds observed a $132 million weekly outflow—the macro-group’s second straight weekly outflow. Fixed income ETFs reported a weekly return of negative 0.61% on average, their third consecutive week in the red.
Short/intermediate investment-grade ETFs (-$1.3 billion), high yield ETFs (-$931 million), and general domestic taxable fixed income ETFs (-$376 million) were the top three subgroups to see net outflows. Short/intermediate government & Treasury ETFs suffered their first weekly outflow over the past four weeks while realizing three straight weeks of losses.
Short/intermediate government & Treasury ETFs (+$1.7 billion), government & Treasury ETFs (+$933 million), and alternative bond ETFs (+$42 million) were the only attractors of new capital under taxable bond ETFs. Short/intermediate government & Treasury ETFs have reported weekly inflows in eight of the last nine weeks despite three consecutive weeks of negative returns.
Municipal bond ETFs reported a $74 million inflow over the week, marking their fourth straight weekly inflow. The subgroup realized a negative 0.77% return—the fourth consecutive week of losses.
SPDR Bloomberg 1-3 Month T-Bill ETF (BIL, +$877 million) and iShares: 20+ Year Treasury Bond ETF (TLT, +$575 million) attracted the largest amounts of weekly net new money for taxable fixed income ETFs.
On the other hand, iShares: Core US Aggregate Bond ETF (AGG, -$820 million) and iShares: 1-5 Year Investment Grade Corporate Bond ETF (IGSB, -$486 million) suffered the largest weekly outflows under all taxable fixed income ETFs.
Conventional equity funds (ex-ETFs) witnessed weekly outflows (-$6.6 billion) for the sixty-fourth straight week. Conventional equity funds posted a weekly return of negative 0.99%, the fifth consecutive week of losses.
Large-cap funds (-$1.7 billion), developed international markets funds (-$1.2 billion), and equity income funds (-$1.0 billion) were the top conventional equity fund subgroups to realize weekly outflows. Although large-cap mutual funds realized their first weekly gain in five weeks (+0.4%), they logged their second weekly outflow in three weeks.
World sector equity funds (+$48 million) was the only subgroup to post weekly inflows. Over the past 26 weeks this subgroup has only recorded two weeks of net inflows. World sector equity funds have realized negative returns in four of five weeks.
Conventional taxable-fixed income funds realized a weekly outflow of $6.3 billion—marking their fourth consecutive weekly outflow and largest of the year. The macro-group logged a negative 0.42% on average—their third straight weekly loss.
Short/intermediate investment-grade funds (-$2.7 billion), high yield funds (-$1.7 billion), and general domestic taxable fixed income funds (-$783 million) suffered the top outflows among conventional taxable fixed income subgroups over the trailing week. Short/intermediate investment grade funds have seen eight weekly outflows in the last nine weeks along with seeing three straight weeks of negative returns.
Short/intermediate government & Treasury funds (+$34 million) was the only subgroup to report inflows over the past week. This was only the third weekly inflow over the prior 10.
Municipal bond conventional funds (ex-ETFs) returned a negative 0.80% over the fund-flows week—their fourth weekly loss in as many weeks. The subgroup experienced a $1.3 billion outflow, marking the ninth straight weekly outflow.
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