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December 21, 2023

U.S. Weekly FundFlows Insight Report: Large-Cap Equity ETFs Post Largest Weekly Inflow Since March 19, 2008

by Jack Fischer.

The data sourced in the article below is derived from Lipper’s Global Fund Flows application. GFF can be found on LSEG Workspace.

During LSEG Lipper’s fund-flows week that ended December 20, 2023, investors were overall net sellers of fund assets (including both conventional funds and ETFs) for the second straight week, removing a net $42.8 billion. This was the third largest weekly net outflow of the year and largest since week ending October 18, 2023.

Tax-exempt bond funds (+$147 million, +1.21%) was the only attracter of net new capital. Money market funds (-$25.1 billion, +0.10%), equity funds (-$9.5 billion, +0.28%), taxable bond funds (-$4.9 billion, +0.98%), mixed-assets funds (-$1.3 billion, +0.55%), alternative investments funds (-$1.1 billion, -0.10%), and commodities funds (-$-1.1 billion, -+3.06%) all suffered outflows over the week.

Index Performance

At the close of LSEG Lipper’s fund-flows week, U.S. broad-based equity indices reported mixed returns—DJIA (-0.02%), Nasdaq (+0.30%), Russell 2000 (+1.81%), and S&P 500 (-0.19%).

Both the Bloomberg Municipal Bond Total Return Index (+1.31%) and Bloomberg U.S. Aggregate Bond Total Return Index (+0.92%) rose over the week.

Overseas indices traded mostly up—DAX (+1.46%), FTSE 100 (+3.37%), Nikkei 225 (+3.32%), S&P/TSX Composite (+1.75%), and Shanghai Composite (-1.57%). The Shanghai Composite has realized negative returns in four straight weeks.

Rates/Yields

Both the two- (-1.80%) and 10-year (-4.15%) fell over the course of the week. The 10-year Treasury yield has fallen in five of the last seven days.

According to Freddie Mac, the 30-year fixed-rate average (FRM) fell for the eighth straight week—the weekly average is currently at 6.67%. The 30-year FRM spent its second straight week below seven percent, following 17 consecutive weeks above that mark. The United States Dollar Index (DXY, -0.45 %) fell, while the VIX (+10.83%) increased over the course of the week.

The CME FedWatch Tool currently has the likelihood of the Federal Reserve lowering interest rates by 25 basis points (bps) at 14.5%. This tool forecasted a 16.5% possibility of a 25 bps cut one month ago. The next meeting is scheduled for January 31, 2024.

Market Recap

On Thursday, December 14, the Department of Labor (DOL) reported that initial claims for state unemployment benefits fell to 202,000. The Department of Commerce reported a 0.3% increase in retail sales during the month of November, thanks to the continued strong labor market and improving future economic expectations. With the Federal Reserve leaving interest rates unchanged Wednesday, market participants are increasingly optimistic in the Fed’s ability to achieve a soft landing. Retail sales increased 4.1% year over year, with the help of November online sales improving 1.0% after falling 0.3% in October. The small-cap focused Russell 2000 (+2.72%) led U.S. broad-based equity market indices on the day—DJIA (+0.43%), S&P 500 (+0.26%), and Nasdaq (+0.19%). Treasury yields fell for the third straight day—two- (-1.51%), five- (-2.26%), and 10-year (-2.88%).

The calendar week ended Friday, December 15, S&P published its S&P Global Flash US Composite PMI report showing that U.S. business signaled stronger activity to end 2023, with the index rising at the fastest pace over the last five moves. The report attributes the growth to an uptick in new orders—the “sharpest increase in new orders since July.” Also highlighted in the report is that cost pressures of input prices rose at their fastest pace since September. Equity markets traded mixed—Nasdaq (+0.35%), DJIA (+0.15%), S&P 500 (-0.01%), and Russell 2000 (-0.77%). The 30-year Treasury yield (-0.32%) fell on the day, while all other shorter yields increased.

On Monday, December 18, geopolitical tensions continued to rise as rebels in Yemen repeatedly attacked commercial shipping vessels with drone and missile strikes in the Red Sea. This shipping passage facilitates roughly a sixth of the world trade and these assaults have caused some ships to avoid the Suez Canal, opting for a longer route around Africa. The NAHB/Wells Fargo Housing Market Index moved up to 37 in December, marking the first monthly improvement in sentiment over the past five months. Novembers reading of 34 was the lowest in close to a year. Equity markets traded mixed once again—Nasdaq (+0.62%), S&P 500 (0.45%), DJIA (+0.00%), and Russell 2000 (-0.14%). Treasury yields rose slightly on the day.

On Tuesday, December 19, the Department of Commerce reported that U.S. single-family home building permits rose 0.7% with single-family housing starts increased 18.0% in November. The number of permits for future construction of single-family homes improved to its highest number since May 2022. Multi-family permits fell 9.6% over the month. Treasury yields fell, led by the 10- (-0.66%) and 30-year (-0.74%).

Our fund-flows week wrapped up Wednesday, December 20, with the Conference Board publishing that consumer confidence improved to a five-month high in December (index=110.7). The report showed that increased confidence was felt across all ages and household income groups. Consumers’ one-year inflation expectation fell to 5.6%, marking the lowest level in more than two years. The National Association of Realtors reported that home resales fell 7.3% from 12-months ago, while 1.13 million previously owned homes were on the market last month—below the close to 2.0 million that was on the market before the pandemic. Both equity markets and Treasury yields tumbled on the day—Nasdaq (-1.50%), S&P 500 (-1.47%), DJIA (-1.27%), and Russell 2000 (+0.00%).

Exchange-Traded Equity Funds

Exchange-traded equity funds recorded $17.4 billion in weekly net inflows, the twelfth straight week of ETFs attracting new capital. The macro-group posted a 0.35% gain on the week, its eighth consecutive week in the black. This was the second largest weekly inflow of the year for equity ETFs.

Large-cap ETFs (+$23.9 billion), small-cap ETFs (+$3.9 billion), and multi-cap ETFs (+$1.6 billion) attracted the top inflows among the equity ETF subgroups. Large-cap ETFs realized their largest weekly inflow since the fund-flows week ending March 19, 2008, as they rebound from their first weekly outflow in 12 last week.

Developed global markets equity ETFs (-$4.5 billion), mid-cap ETFs (-2.4 billion), and emerging markets equity funds (-$1.8 billion) suffered the top weekly outflows under equity ETFs. Developed global markets equity ETFs observed their second weekly outflow in three as they realized their largest weekly outflow since fund-flows week ending June 20, 2018.

Over the past fund-flows week, the two top equity ETF flow attractors were SPDR S&P 500 ETF Trust (SPY, +$37.7 billion) and iShares Russell 2000 ETF (IWN, +$2.9 billion).

Meanwhile, the two bottom equity ETFs in terms of weekly outflows were iShares Core S&P 500 ETF (IVV, -$11.5 billion) and iShares Core S&P Mid-Cap ETF (IJH, -$2.0 billion).

Exchange-Traded Fixed Income Funds

Exchange-traded taxable fixed income funds observed a $2.4 billion weekly outflow—the macro-group’s third straight outflow. Fixed income ETFs reported a return of positive 0.94% on average, their eighth consecutive positive weekly return.

Short/intermediate investment grade ETFs (+$2.0 billion), government & Treasury fixed income ETFs (+$1.1 billion), and high yield funds (+$1.1 billion) were the top subgroups under taxable bond ETFs to observe inflows. Short/intermediate investment grade ETFs have seen weekly inflows in six of the last seven weeks while realizing nine consecutive weeks of gains.

Short/intermediate government & Treasury ETFs (-$4.7 billion), general domestic taxable fixed income ETFs (-$1.8 billion), and world income ETFs (-$203 million) were the three top subgroups to see net outflows. Short/intermediate government & Treasury ETFs have suffered seven straight weeks of outflows, despite five consecutive weeks of positive returns.

Municipal bond ETFs reported a $519 million inflow over the week, marking their fourteenth week of inflows over the past 15 weeks attracting new capital. The subgroup realized a positive 1.02% return—the eighth straight weeks of gains.

iShares 20+ year Treasury Bond ETF (TLT, +$1.1 billion) and BNY Mellon Core Bond ETF (BKAG, +$1.1 billion) attracted the largest amounts of weekly net new money for taxable fixed income ETFs.

On the other hand, SPDR Bloomberg 1-3 Month T-Bill ETF (BIL, -$1.1 billion) and WisdomTree Floating Rate Treasury Fund (USFR, -$841 million) suffered the largest weekly outflows under all taxable fixed income ETFs.

Conventional Equity Funds

Conventional equity funds (ex-ETFs) witnessed weekly outflows (-$26.9 billion) for the ninety-seventh straight week. Conventional equity funds posted a weekly return of positive 3.33%, the seventh consecutive week of gains. This was the largest weekly outflow in more than one year.

Large-cap funds (-$9.3 billion), mid-cap funds (-$4.8 billion), and multi-cap funds (-$3.5 billion) were the top conventional equity fund subgroups to realize weekly outflows. Large-cap mutual funds saw their tenth weekly outflow over the past 11 weeks while recording their largest weekly outflow since the week ending December 14, 2022.

No equity mutual fund subgroups recorded inflows over the trailing week.

Conventional Fixed Income Funds

Conventional taxable-fixed income funds realized a weekly outflow of $2.6 billion—marking their fourteenth weekly outflow over the past 15. The macro-group logged a positive 1.00% on average—their eighth straight weekly gain.

General domestic taxable fixed income funds (-$795 million), emerging markets debt funds (-$672 million), and short/intermediate investment-grade funds (-$419 million) suffered the top outflows among conventional taxable fixed income subgroups over the trailing week. General domestic taxable fixed income funds have seen 16 weekly outflows in the past 20 weeks, despite eight consecutive weekly gains.

Alternative bond funds (+$37 million) was the only subgroup to post inflows on the week. Alternative bond funds have reported three straight weekly inflows as they also realize nine straight weeks of gains.

Municipal bond conventional funds (ex-ETFs) returned a positive 1.26% over the fund-flows week, marking eight straight weeks of plus-side returns. The subgroup experienced a $372 million outflow, marking the twentieth straight weekly outflow.

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