During Refinitiv Lipper’s fund-flows week ended September 15, 2021 investors were overall net redeemers of fund assets (including both conventional funds and ETFs) for the second week in three, withdrawing $33.1 billion.
Equity funds (+$5.9 billion), taxable bond funds (+$5.0 billion), and tax-exempt bond funds (+$1.3 billion) all attracted new money during the fund-flows week. Money market funds (-$45.3 billion) suffered significant outflows. Money market funds posted their third straight week of net outflows as they witnessed their fifteenth largest weekly outflow to date and largest since December 2020.
Index Performance
At the close of Refinitiv Lipper’s fund-flows week, U.S. broad-based indices reported their second straight week of losses—DJIA (-0.62%), Russell 2000 (-0.68%), S&P 500 (-0.74%), and NASDAQ (-0.82%)—all ended in the red. Overseas, the Shanghai Composite (-0.11%) and FTSE 100 (-0.45%) depreciated, while the DAX 30 (+0.10%) and Nikkei 225 (+2.06%) logged plus-side performance.
Rates/Yields
During the fund-flows week, the Treasury yield curve continued to flatten as the 30-year Treasury yield fell 4.25%. Since the end of Q1 2021, the seven-, 10-, and 30-year yields have dropped more than 20%. The two- and three-year yields have increased more than 25% during the same period—up 33.13% and 26.59%, respectively. As of September 9, the U.S. 30-year fixed-rate mortgage average rose to 2.88% (+0.35% week over week). Both the United States Dollar Index (DXY, -0.11%) and the VIX (-4.47%) decreased over the week.
Market Recap
On Thursday, September 9, broad-based U.S. markets traded down, the Russell 2000 (-0.03%), NASDAQ (-0.25%), DJIA (-0.43%), and S&P 500 (-0.46%) all suffered losses on the day. All Treasury yields along the curve decreased on the day as well, led by a 2.77% drop in the 30-year yield. Weekly first-time unemployment claims were reported at 310,000 (versus an estimated 335,000)—marking the lowest total in the pandemic era.
The European Central Bank (ECB) became the first major central bank to announce its decision to reduce its bond purchasing program. The ECB noted their move should not be described as “tapering” but with asset purchasing will now be at a “moderately lower pace.” In the U.S. the Federal Reserve Chair Jerome Powell and many other officials have proposed that the Fed’s reduction of its quantitative easing program will more than likely take place this year.
President Joe Biden is now proposing a new mandate demanding all businesses with more than 100 employees require their workers to be inoculated or submit themselves for weekly COVID-19 testing. Employers would be on the hook to grant their employees paid time off to get vaccinated. The President’s mandate follows the Fed’s Beige Book findings. The Beige Book, which publishes the Fed’s outlook on current economic conditions, read:
“The deceleration in economic activity was largely attributable to a pullback in dining out, travel, and tourism in most Districts, reflecting safety concerns due to the rise of the Delta variant, and, in many cases, international travel restrictions.”
On Friday, September 10, Treasury yields rose as investors ingested the Department of Labor’s (DOL) Producer Price Index (PPI). While the PPI reported a month-over-month deceleration in prices—core PPI (excluding energy and food) was up 0.3% (down from July’s 0.9% gain) and PPI for final demand increased 0.7% in August (down 1% from July’s gain)—the one-year gains for both figures were the largest on record. The report detailing prices paid by producers has once again highlighted the bullwhip effect’s strain on the overall economy.
Broad-based U.S. equity markets were down once again, each reporting daily losses of more than 0.75%—led by the small cap-focused Russell 2000 (-0.96%). In other news, a significant ruling came down against Apple. A California judge ruled in favor of Epic Games as she issued a permanent injunction against Apple’s App Store and called the company policies anti-competitive. It is estimated that Apple’s revenue from commissions on App Store sales is roughly $41.5 billion.
To start the new calendar week on Monday, it was reported that the House Democrats have put together a package that would lower the proposed tax rate hikes. The House Committee on Ways and Means intends to increase the corporate tax rate from 21% to 26.5% (compared to President Biden’s 28%). In the proposal, the capital gains tax rate (25%) would also fall under Biden’s target of 39.6%.
On a positive note, the seven-day COVID-19 case average as of September 12 published by Johns Hopkins showed a 12% decrease from the previous week and a 14% decrease from the most recent peak. Equity markets close slightly positive for the first time in six sessions—the DJIA (+0.76%) took home the top spot.
Tuesday, September 14, saw the release of the DOL’s Consumer Price Index (CPI). The closely monitored core-CPI for August only rose 0.1%, marking the smallest increase since February 2021. August’s all items index increased 5.3% year over year (down 0.1% from July’s one-year figure). The CPI-U (CPI for All Urban Consumers) also rose at a slower pace compared to the previous month (+0.3% vs.+0.5%). The easing of inflationary pressures led to all Treasury yields across the yield curve to decrease by more than 2%. U.S. equity markets struggled in the latter half of the day and ended in the red.
Our fund-flows week wrapped up Wednesday, September 15, with a nice bounce-back session from the Russell 2000 (+1.11%), S&P 500 (+0.85%), NASDAQ (+0.82%), and DJIA (+0.68%). The Fed reported U.S. industrial production increased in August (+0.4%)—a decrease from July’s 0.8% rise and lower than the market’s expectations of 0.5%. AccuWeather projected that Hurricane Ida caused storm damage of roughly $95 billion, making Ida the most expensive hurricane to hit since 2000.
Exchange-Traded Equity Funds
Exchange-traded equity funds recorded $10.1 billion in weekly net inflows. This is the macro-group’s third straight week of inflows despite Equity ETFs posting back-to-back weeks of negative performance (-0.54%, on average over the most recent fund-flows week).
Growth/value-large cap ETFs (+$7.2 billion) and international equity ETFs (+$1.7 billion) registered the largest net inflows in the equity ETF macro-group. Growth/value large-cap ETFs recorded their third consecutive week of net inflows. International equity ETFs have now recorded 12 straight weeks of inflows. Both subgroups realized negative performance over the fund-flows weeks (-0.70% and -0.23%, respectively).
Sector-financial/banking ETFs (-$840 million) and growth/value-small cap ETFs (-$194 million) suffered the largest outflows for the week. Sector-financial/banking ETFs have reported three weeks of outflows in the last four. Growth/value-small caps logged their first week of outflows in three weeks after returning a negative 0.67% over the week, on average.
Over the past fund-flows week, the top three equity ETFs flow attractors were: SPDR S&P 500 ETF (SPY, +$3.0 billion), Invesco QQQ Trust 1 (QQQ, +$1.5 billion), and Invesco S&P 500 Equal Weight (RSP, +$1.4 billion).
Meanwhile, the bottom three equity ETFs in terms of weekly outflows were iShares: Russell 2000 ETF (IWM, -$878 million), Select Sector: Financials SPDR (XLF, -$621 million), and iShares: MSCI USA Quality Factor (QUAL, -$521 million).
Exchange-Traded Fixed Income Funds
Exchange-traded fixed income funds recorded $1.5 billion in weekly net inflows—the macro-group’s eighth consecutive week of inflows. Fixed income ETFs reported a weekly return of positive 0.29% on average.
Corporate-investment grade ETFs (+$919 million) and government-Treasury ETFs (+$296 million) had the largest weekly inflows under the fixed income ETF macro-group. Corporate-investment grade ETFs reported their sixth straight weekly inflows. Government-Treasury ETFs realized their third week of net inflows over the previous four. The subgroup has realized 10 weeks of positive performance, on average, over the past 14 weeks.
Corporate-high yield ETFs (-$685 million) were the only subgroup to record weekly outflows of more than $1 million. The subgroup posted a positive 0.27% weekly return on average while also logging their fifth straight week of plus-side performance.
SPDR Bloomberg Barclays 1-3 Month T-Bill ETF (BIL, +$526 million) and Schwab US TIPS ETF (SCHP, +$241 million) attracted the largest amounts of weekly net new money for taxable fixed income ETFs.
On the other hand, iBoxx $High Yield Corporates (HYG, -$1.0 billion) and iShares: iBoxx $Investment Grade Corporates (LQD, -$369 million) suffered the largest net weekly outflows.
Conventional Equity Funds
Conventional equity funds (ex-ETFs) were net redeemers for the twenty-third time in 24 weeks (-$4.2 billion). Conventional equity funds posted a weekly return of negative 0.51% on average.
Domestic conventional equity funds saw outflows this week (-$4.5 billion), marking the twelfth straight week of outflows. The subgroup has realized back-to-back weeks of negative performance. Nondomestic conventional equity funds attracted a weekly inflow of $284 million—their tenth week of net inflows in 11.
Conventional international equity funds (+$602 million) and sector-real estate funds (+$80 million) realized the largest weekly inflows under the macro-group. International equity funds witnessed their tenth week of inflows in 11 despite reporting two straight weeks of negative performance. Sector-real estate funds realized their worst weekly performance (-2.12%) since March as they logged their first week of net inflows in four.
Growth/value large-cap funds (-$4.2 billion) and global equity funds (-$318 million) saw the most money leave under conventional equity funds. Growth/value large-cap funds have seen outflows in 63 of their last 64 weeks. The subgroup depreciated 0.51% on average over the fund-flows week. Global equity funds suffered negative performance (-0.43%) over the fund-flows week while logging their first weekly net outflows in three weeks.
Conventional Fixed Income Funds
Conventional fixed income funds realized a weekly inflow of $3.5 billion—their sixth straight week of inflows. The subgroup reported a weekly performance of positive 0.14% on average.
Conventional corporate investment-grade funds (+$2.1 billion) led the macro-group in inflows as they observed their seventy-fourth consecutive week of inflows. Conventional flexible funds (+$833 million) followed, realizing their twenty-second straight week of inflows.
Only three conventional fixed income subgroups realized weekly outflows: balanced funds (-$115 million), corporate-high quality funds (-$11 million), and government-Treasury & mortgage funds (-$10 million). Balanced conventional funds posted their second week of outflows in the past four. Corporate-high quality funds suffered their first outflow in four weeks. Government-Treasury & mortgage funds suffered their first outflow over the past three weeks.
Municipal bond funds (ex-ETFs) returned negative 0.01% on average over the fund-flows week. The subgroup attracted inflows ($+875 million) and posted their twenty-fourth straight week of net inflows. The subgroup has reported negative weekly performance in four of the past five weeks. Municipal bond funds have only recorded two total weeks of net redemptions this year.
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