Despite Interest Rate Hikes, ETF Investors Turn to Short-Term Bonds in September

Investors were net redeemers of mutual fund assets for the ninth month in a row, redeeming $119.4 billion from the conventional funds business (excluding ETFs, which are reviewed in the section below) for September. For the eighteenth month running, stock & mixed-assets funds experienced net outflows (-$63.7 billion). As a result of the 10-year Treasury yield rising 68 basis points (bps) during the month, the fixed income funds macro-group—for the ninth month in 10—witnessed net outflows, handing back $55.0 billion. Money market funds witnessed net outflows for the second month in a row (albeit only -$703 million).

For the fifth consecutive month, ETFs attracted net new money, taking in $23.4 billion for September. Authorized participants (APs—those investors who create and redeem ETF shares) were net purchasers of stock & mixed-assets ETFs—also for the fifth month in a row—injecting $9.8 billion into equity ETF coffers. For the eighth month in a row, they were net purchasers of bond ETFs—injecting $13.6 billion for the month. APs were net purchasers of just two of the five equity-based ETF macro-classifications, padding the coffers of U.S. Diversified Equity ETFs (+$27.0 billion) and World Equity ETFs (+$389 million) while being net sellers of Sector Equity ETFs (-$14.6 billion), Alternatives ETFs (-$2.5 billion), and Mixed-Assets ETFs (-$377 million).

In this report, I highlight the September 2022 fund-flows results and trends for both ETFs and conventional mutual funds (including variable annuity underlying funds).

Highlights:

• For the ninth straight month, mutual fund investors were net redeemers of fund assets, withdrawing $119.4 billion from conventional funds for September.
• Fixed income funds (-$55.0 billion for September) witnessed net outflows for the ninth month in 10, while money market funds (-$703 million) suffered net redemptions for the second month in a row.
• For the eighteenth straight month, investors were net sellers of stock & mixed-assets funds (-$63.7 billion).
• APs were net purchasers of ETFs, injecting $23.4 billion for September.
• And, for the eighth straight month, fixed income ETFs (+$13.6 billion for September) witnessed net inflows while investors were net purchasers of stock & mixed-assets ETFs (+$9.8 billion).
• Alternative equity ETFs (-$2.5 billion) suffered their first monthly redemption in five.