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March 21, 2024

U.S. Weekly FundFlows Insight Report: Equity ETFs Attract Their Largest Weekly Net Inflows Since December 20, 2023, for the Fund-Flows Week

by Tom Roseen.

Investors were net sellers of fund assets (including those of conventional funds and ETFs) for the first week in four, redeeming a net $49.8 billion for the LSEG Lipper fund-flows week ended Wednesday, March 20, 2024. However, the headline number is a bit misleading.

Fund investors were net purchasers of equity funds (+$15.5 billion), commodity funds (+$1.6 billion), and alternatives funds (+$138 million) while being net sellers of mixed-assets funds (-$289 million), fixed income funds (-$438 million), and money market funds (-$66.3 billion) for the week.

Market Wrap-Up

While no FOMC interest rate hike was anticipated, all eyes were focused on Federal Reserve Chair Jerome Powell’s policy-setting press conference scheduled for the end of the fund-flows week after inflation data came in hotter than expected earlier in the week, keeping U.S. stocks somewhat range bound.

On the domestic equity side of the equation, the Dow Jones Industrial Average (+1.20%) posted the strongest plus-side return of the often-followed broad-based U.S. indices, followed by the Nasdaq Composite (+1.18%) and the S&P 500 (+1.15%). The Russell 2000 (+0.15%) was the relative laggard of the group. Overseas, the Shanghai Composite (+1.11%) moved to the top of the leaderboard of the often-followed broad-based international indices, followed by the Nikkei 225 (+0.71%) and the DAX Total Return Index (-0.52%). Meanwhile, the FTSE 100 (-1.12%) suffered the largest losses of the subgroup for the flows week.

The Morningstar LSTA U.S. Leveraged Loan Index (+0.19%) outperformed the Bloomberg U.S. Aggregate Bond Index (-0.36%) and the Bloomberg Municipal Bond Index (-0.44%) for the fund-flows week.

For the flows week, the Treasury yield curve flattened a bit, rising at the long end of the curve, with the 30-year Treasury yield seeing the largest rise, 10 basis points (bps), to settle at 4.45%. The one-month and two-year Treasury yields witnessed the largest declines, falling two bps to 5.50% and 4.59%, respectively. The 10-year Treasury yield rose eight bps for the week—settling at 4.27%. The U.S. Treasury yield curve remained inverted, with the two- and 10-year Treasury yield spread (-32 bps) narrowing by 10 bps during the week.

On Thursday, March 14, U.S. stocks ended lower after investors learned that the February producer price index rose more than expected, advancing 0.6%, and retail sales came in weaker than expected in February, rising 0.6% versus the consensus expectation of 0.8%, showing some signs that consumers continue to be a bit more cautious about their spending habits. Front-month crude oil futures rose 1.94% on the day to settle at $81.26/bbl after Ukrainian attacks on Russian oil facilities pressured prices. The 10-year Treasury yield rose 10 bps on the day to close at 4.29%.

The Nasdaq, S&P 500, and Dow ended lower on the day and the week on March 15, with the Dow falling for the third week in a row and the other two booking back-to-back weekly losses as the information-technology sector took it on the chin and investors awaited signals from the upcoming FOMC meeting. Fed funds futures traders expected the Fed to hold its key lending rate steady at the policy meeting next week and again in May, according to the CME FedWatch Tool. The University of Michigan’s consumer confidence survey slipped marginally in March to 76.5 from 76.9 in February, missing analysts’ expectations for a slight uptick. Nonetheless, the 10-year yield rose two bps, closing the week at 4.31%—snapping a three-week streak of declines.

U.S. stocks snapped a three-day losing streak on Monday, March 18, as investors focused on upcoming central bank meetings, with many anticipating that the Bank of Japan (BOJ) will end its negative interest rate policy on Tuesday and the Fed will shed some light on the likelihood of interest rate cuts later this year at the conclusion of its two-day policy setting meeting on Wednesday. In other news, the National Association of Home Builders reported that builders’ monthly confidence index rose three points in March to 51, rising for the fourth consecutive month as home buyer demand remained strong. The 10-year Treasury yield continued its ascent, rising three bps to 4.34%.

U.S. stock indices closed higher on Tuesday, March 19, with the S&P 500 posting its eighteenth record close of 2024. Early in the day, the BOJ ended its 12-year experiment with negative interest rates, moving its key lending rate to at least zero—giving the Nikkei 225 a boost. Front month crude oil prices rose 0.9% to close the day at $83.47/bbl. The 10-year Treasury yield slipped four bps on the day to 4.30%.

Stocks rose on Wednesday, March 20, with all three indices posting record closing highs after the Federal Reserve Board maintained its interest-rate-cut outlook and as expected left interest rates unchanged. Most officials penciled in three rate cuts in 2024, in line with December’s projections. The 10-year Treasury yield declined three bps on the day to close out the fund-flows week at 4.27%.

Exchange-Traded Equity Funds

Equity ETFs witnessed net inflows for the fourth consecutive week, taking in $19.0 billion for the most recent fund-flows week. Authorized participants (APs) were net purchasers of domestic equity ETFs (+$16.9 billion), taking in money also for the fourth week in a row, while nondomestic equity ETFs witnessed net inflows for the thirteenth week in a row, taking in $2.0 billion this past week.

Large-cap ETFs (+$17.3 billion) experienced the largest net inflows of the equity ETF macro-groups for the fund-flows week, followed by emerging markets equity ETFs (+$1.5 billion) and equity income ETFs (+$685 million). Meanwhile, small-cap ETFs (-$792 million) observed the largest net outflows, bettered by the multi-cap ETFs (-$466 million) and mid-cap ETFs (-$109 million) macro-groups.

Exchange-Traded Alternatives, Commodities, and Mixed-Assets Funds

Of the other equity-based macro-classifications, commodities ETFs (+$1.6 billion) and mixed-assets ETFs (+$102 million) witnessed net inflows, while the alternatives ETFs (-$34 million) macro-classification suffered the only net redemption for the week.

SPDR S&P 500 ETF Trust (SPY, +$25.3 billion), iShares S&P 500 Growth ETF (IVW, +$4.6 billion), and iShares MSCI USA Quality Factor ETF (QUAL, +$3.2 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 Core S&P 500 ETF (IVV, -$22.6 billion) experienced the largest individual net redemptions and iShares ESG Aware MSCI USA ETF (ESGU, -$1.2 billion) suffered the second largest net redemptions of the week.

Exchange-Traded Fixed Income Funds

For the first week in 13, taxable fixed income ETFs experienced net outflows, handing back $1.6 billion this week. APs were net purchasers of government & Treasury fixed income ETFs (+$951 million), general domestic taxable fixed income ETFs (+$612 million), and alternative bond ETFs (+$543 million) while being net redeemers of short/intermediate government &Treasury ETFs (-$2.0 billion) and high yield ETFs (-$1.9 billion).

iShares Bitcoin Trust (IBIT, +$1.6 billion, warehoused in Lipper’s Alternative Currency Strategies ETFs classification), BlackRock Flexible Income ETF (BINC, +$752 million), and iShares Core Total USD Bond Market ETF (IUSB, +$641 million) attracted the largest amounts of net new money of all individual taxable fixed income ETFs. Meanwhile, iShares Treasury Floating Rate Bond ETF (TFLO, -$2.0 billion) and Grayscale Bitcoin Trust (GBTC, -$1.7 billion) handed back the largest individual net redemptions for the week.

Municipal bond ETFs witnessed net outflows for the first week in five, however, handing back just $32 million this week. Invesco National AMT-Free Municipal Bond ETF (PZA, +$14 million) witnessed the largest draw of net new money of the municipal bond ETFs, while iShares National Muni Bond ETF (MUB, -$129 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 one hundred-and-tenth week in a row—redeeming $3.5 billion—with the macro-group posting a 0.58% market gain for the fund-flows week. Domestic equity funds—suffering net redemptions of slightly more than $2.2 billion—witnessed their one hundred-and-eleventh consecutive week of net outflows while posting a 0.80% market rise on average for the fund-flows week. Nondomestic equity funds—posting a 0.16% weekly market gain on average—observed their fifty-fourth week of net outflows in a row, handing back slightly less than $1.3 billion this week.

On the domestic equity side, fund investors were net redeemers of large-cap funds (-$1.5 billion), equity income funds (-$579 million), and sector equity funds (-$246 million). Investors on the nondomestic equity side were net sellers of emerging markets equity funds (-$500 million), developed international markets funds (-$342 million), and developed global markets funds (-$272 million) for the week.

Conventional Alternatives, Commodities, and Mixed-Assets Funds

Of the other equity-based macro-classifications, the conventional alternatives funds (+$172 million) macro-classification attracted net new money, while commodities funds (-$19 million) and mixed-assets funds (-$391 million, excluding funds of funds) witnessed net redemptions for the week.

Conventional Fixed Income Funds

Taxable bond funds (ex-ETFs) witnessed net inflows for the twelfth week in a row, taking in $1.1 billion this past week—while posting a 0.15% market decline on average for the fund-flows week. The short/intermediate investment-grade debt funds macro-group witnessed the largest net inflows for the week—taking in $1.2 billion—followed by general domestic taxable fixed income funds (+$204 million) and government & Treasury fixed income funds (+$163 million). World income funds (-$401 million) suffered the largest net redemptions, bettered by high-yield funds (-$122 million) and emerging markets debt funds (-$45 million).

The municipal bond funds group posted a 0.33% market decline on average during the fund-flows week (their first weekly market decline in five) but witnessed net inflows for the third consecutive week, taking in $96 million this week. The High Yield Municipal Debt Funds (+$170 million) and California Municipal Debt Funds (+$22 million) classifications witnessed the largest net inflows of the group. The Short Municipal Debt Funds classification witnessed the largest net outflows of the group—handing back $78 million—bettered by Short-Intermediate Municipal Debt Funds (-$22 million).

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