During Refinitiv Lipper’s fund-flows week ended August 25, 2021, investors were overall net purchasers of fund assets (including both conventional funds and ETFs) for the fifth consecutive week, attracting $2.9 billion.
Taxable bond funds (+$6.7 billion), tax-exempt bond funds (+$1.9 billion), and money market funds (+$738 million) all attracted new money, whereas equity funds (-$6.4 billion) suffered outflows.
Index Performance
At the close of Refinitiv Lipper’s fund-flows week, U.S. broad-based indices reported a huge bounce-back week— Russell 2000 (+3.73%), NASDAQ (+3.55%), S&P 500 (+2.18%), and DJIA (+1.27%) all ended in the black. Overseas, the Shanghai Composite (+1.67%) and Nikkei 225 (+0.92%) logged plus-side performance, while the FTSE 100 (-0.45%) and DAX 30 (-0.32%) closed the week in the red.
Rates/Yields
During the fund-flows week, the two-year Treasury yield jumped 11.87%. The two- and three-year yields have outpaced longer-dated yields—up 66.67% and 101.79% since the start of the year, respectively. As of August 19, the U.S. 30-year fixed-rate mortgage average fell to 2.86% (-0.35% week over week). The slight drop follows a 3.61% increase last week, which was the largest week-over-week increase since February. Both the United States Dollar Index (DXY, -0.33%) and the VIX (-26.66%) decreased over the week.
Market Recap
On Thursday, August 19, broad-based U.S. markets traded mixed, the S&P 500 (+0.13%) and NASDAQ (+0.11%) recorded daily gains, while the Russell 2000 (-1.22%) and DJIA (-0.19%) saw losses. Apart from the two-year Treasury yield (+0.46%), all other spot yields decreased on the day. Initial unemployment claims for the week ended at 348,000 (versus an estimated 364,000)—marking the lowest figure since March 2020. Continuing claims fell to 2.8 million, also a pandemic-era low. The positive employment numbers continue to provide evidence of progress on the Federal Reserve’s maximum employment mandate.
Friday, August 20, saw the Russell 2000 (+1.65%) end a six-day losing streak. The remaining U.S. broad-based indices also ended the week with a positive session—NASDAQ (+1.19%), S&P 500 (+0.81%), and DJIA (+0.65%). Treasuries witnessed a sell-off across the board, the 10-year yield increased 1.45%. Oil, copper, and lumber prices are down 16%, 19%, and 70% from recent highs, respectively. Refinitiv Proprietary Research reported of the 476 companies in the S&P 500 that have reported earnings to date for the second quarter, a record-breaking 87.4% have reported earnings above analyst estimates.
To start the new calendar week on Monday, IHS Markit published their monthly U.S. Composite PMI report. The report specified a sharp decline in private sector growth. The August Flash U.S. Composite Output Index came in at 55.4 (down from 59.9 in July), denoting the lowest level in eight months. A level over 50 implies expansion. Supply chain disruptions, material shortages, and renewed COVID-19 virus concerns have led to the index reporting its third consecutive month of declining growth. The National Association of Realtors reported existing-home sales rose 2% in July, denoting the second consecutive month of increases. With supply slowly increasing, prices have seen some declines—median existing-home prices in July were $359,900 and down from June’s $363,300. U.S. equity markets continued their momentum from Friday—Russell 2000 (+1.88%), NASDAQ (+1.55%), S&P 500 (+0.85%), and DJIA (+0.61%) all ended the daily session with gains.
Tuesday, August 24, saw the domestic equity rally continue as the Food and Drug Administration (FDA) granted full approval for the Pfizer-BioNTech COVID-19 vaccine. The Russell 2000 (+1.02%) led the way, followed by the NASDAQ (+0.52%), S&P 500 (+0.15%), and DJIA (+0.09%). After the session close, the U.S. House of Representatives passed a $3.5 trillion budget resolution while moving the $1 trillion bipartisan infrastructure bill forward. The bill is already approved by the Senate and is in line for final passage in the House.
Our fund-flows week wrapped up Wednesday, August 25. The Russell 2000 (+0.37%), S&P 500 (+0.22%), NASDAQ (+0.15%), and DJIA (+0.11%) each recorded daily gains—the fourth straight day all four equity indices appreciated. Treasury yields spiked a day in advance of the Fed’s three-day Jackson Hole symposium. The market will be looking for any news on when the Fed will begin tapering.
This week’s U.S. broad market rebound was a key test on investor’s sentiment and risk tolerance following the release of last week’s Federal Reserve July Meeting Minutes. Last week, the Fed signaled its intention to slow the central bank’s monthly asset purchasing program—currently purchasing $80 billion of Treasuries and $40 billion of mortgage securities each month. While the timing and pace of the reduction are being debated, there appears to be agreement that the move will be made sometime this year.
Consensus also indicates any increase in rates will not happen until after a successful drawdown on central bank purchases—present views are that rate hikes will not happen until 2023. The Fed is very keen to not incite another 2013-like taper tantrum that caused a massive sell-off in both equity and fixed income markets. This week, South Korea became the first developed country in the world to raise rates. This was the first hike in nearly three years.
Exchange-Traded Equity Funds
Exchange-traded equity funds recorded $2.9 billion in weekly net outflows. This is the macro-group’s first week of outflows in four weeks despite Equity ETFs returning their largest weekly performance since April (+2.22%, on average).
Growth/value large-cap ETFs (-3.5 billion) and growth/value small-cap ETFs (-$1.0 billion) registered the largest net outflows in the equity ETF macro-group. Growth/value large-cap ETFs recorded their first week of net outflows since the first week of August. Growth/value small-cap ETFs have now recorded eight weeks of net outflows in the past nine. The subgroup returned a positive 3.22%, on average—marking the largest return since March. The large outflows from growth and value funds come despite the strong weekly returns and could signal investors preparing for stronger tapering talks out of Jackson Hole.
Sector-technology ETFs (+$1.9 billion) and international equity ETFs (+$1.3 billion) attracted the largest new money for the week. Sector-technology ETFs have reported five weeks of inflows in the last six. This was the largest intake for sector-technology ETFs since February. If indeed rates do not increase until 2023, we may see this subgroup continue to attract significant capital. International equity ETFs have logged nine straight weeks of inflows, as well as five straight weeks of a four-week moving average of more than $1 billion.
Over the past fund-flows week, the top four equity ETFs flow attractors were: KraneShares CSI China Internet ETF (KWEB, +$904 million), iShares: Core S&P 500 (IVV, +$861 million), Invesco QQQ Trust (QQQ, +$562 million), and iShares: MSCI EAFE Small-Cap (SCZ, +$490 million). Meanwhile, the bottom four equity ETFs in terms of weekly outflows were SPDR S&P 500 ETF (SPY, -$5.4 billion), Invesco S&P 500 Low Volatility (SPLV, -$1.2 billion), SPDR Gold (GLD, -$770 million), and iShares: Russell 2000 ETF (IWM, -$744 million).
Exchange-Traded Fixed Income Funds
Exchange-traded fixed income funds recorded $3.5 billion in weekly net inflows—the macro-group’s fifth consecutive week of inflows. Fixed income ETFs reported a weekly return of negative 0.10% on average—their second week of negative performance in the last three.
Corporate-investment grade ETFs (+$1.7 billion) and government-Treasury ETFs (+$1.2 billion) had the largest weekly inflows under the fixed income ETF macro-group. Corporate-investment grade ETFs reported their third straight weekly inflows. Despite recording their two weeks of negative performance in three, government-Treasury ETFs realized their fifth week of net inflows over the previous six. Each weekly inflow totaled more than $1 billion.
International & global debt ETFs (-$30 million) was the only subgroup to record weekly outflows of more than $1 million. The subgroup posted a positive 0.24% weekly return on average while logging their first weekly outflow in nine weeks.
iShares: 20+ Treasury Bond ETF (TLT, +$474 million) and iShares: TIPS Bond ETF (TIP, +$401 million) attracted the largest amounts of weekly net new money for taxable fixed income ETFs. On the other hand, Shares: Short Treasury Bd ETF (SHV, -$226 million) and iShares: iBoxx $High Yield Corporates (HYG, -$61 million) suffered the largest net weekly outflows.
Conventional Equity Funds
Conventional equity funds (ex-ETFs) were net redeemers for the twenty-first time in 23 weeks (-$3.5 billion). Conventional equity funds posted a weekly return of positive 2.26% on average—their highest weekly performance since February.
Domestic conventional equity funds saw outflows this week (-$3.8 billion), marking the sixty-first week of outflows in the last 63. The subgroup has realized five weeks of positive performance in the last six. Nondomestic conventional equity funds attracted a weekly inflow of $317 million—their eighth straight week posting inflows.
Conventional international equity funds (+$456 million) and equity income funds (+$69 million) realized the largest weekly inflows under the macro-group. International equity funds witnessed their eighth straight week of inflows after reporting the largest weekly performance in two months. Equity income funds realized positive weekly performance (+1.41%) as they logged their third consecutive week of net inflows.
Growth/value large-cap funds (-$2.8 billion) and growth/value small-cap funds (-$535 million) saw the most money leave under conventional equity funds. Growth/value large-cap funds have seen outflows in 60 of their last 61 weeks. The subgroup appreciated 2.47% on average over the fund-flows week. Despite banking their largest weekly return since March (+3.33%), growth/value small-cap funds registered their tenth consecutive weekly outflows.
Conventional Fixed Income Funds
Conventional fixed income funds realized a weekly inflow of $3.2 billion—their third straight week of inflows. The subgroup reported a weekly performance of positive 0.26% on average.
Conventional corporate investment-grade funds (+$1.7 billion) led the macro group in inflows as they observed their seventy-first consecutive week of inflows. Conventional flexible funds (+$1.3 billion) followed realizing their nineteenth straight week of inflows.
Only two conventional fixed income subgroups realized weekly outflows: government-mortgage funds (-$142 million) and government-Treasury & mortgage funds (-$35 million). Government-mortgage funds posted their third week of outflows in the past four. Government-Treasury & mortgage funds suffered their first outflow over the past three weeks. Both subgroups recorded negative weekly performance (-0.09% and -0.15%, respectively).
Municipal bond funds (ex-ETFs) returned negative 0.08% on average over the fund-flows week. The subgroup attracted inflows ($+1.6 billion) and posted their twenty-first straight week of net inflows. The subgroup has reported negative weekly performance in three straight weeks. Municipal bond funds have only recorded two total weeks of net redemptions this year.
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