Despite A Strong Market Rally, Fund Investors Are Net Redeemers Of Equity Funds For The Week

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Includes: DXJ, GLD, IEMG, XLF, XLV
by: Lipper Alpha Insight

By Tom Roseen

Despite a disappointing May nonfarm payrolls report, investors pushed the U.S. broad-based indices near record territory for the fund-flows week ended June 8, 2016, after the European Central Bank left its key lending rate unchanged and oil broke through the $50/barrel mark.

Even with the OPEC countries' inability to reach an oil production-cap agreement at the beginning of the fund-flows week, the price of oil rallied when the U.S. Energy Information Administration reported a decline in U.S. crude oil inventories. The interest in equities continued, but investors remained cautious before the upcoming "Brexit" vote and the Federal Reserve's June monetary policy meeting. On Friday, June 3, stocks ticked lower after investors learned the U.S. economy added just 38,000 jobs for May, well below analyst expectations. Financials took it on the chin, while utilities and gold rallied as investors weighed the implications of the dour jobs report on the Fed's likelihood of raising interest rates in June. However, stocks once again continued their ascent, despite Fed Chair Janet Yellen's downplaying the poor jobs report, pointing to a domestic economy that appears to be in relatively good shape. Investors appeared to shrug off Yellen's hawkish tone after she made references to the "Brexit" vote and to China's challenges in rebalancing its economy. Attacks on pipelines in Nigeria helped push oil prices higher mid-flows week as investors anticipated some oil shortages; however, a late report on the increase in the number of U.S. oil rigs that are drilling for oil capped the rally. Ignoring a slump in biotech issues, markets continued their climb, catapulted by a sustained rally in the energy sector; Brent broke through the $51/barrel mark and WTI crude closed above $50/barrel. The Dow Jones Industrial Average finished the flows week above the psychologically important 18,000 mark as oil rallied to an 11-month high, with WTI crude closing the day out at $51.23/barrel and with Yellen's rate hike comments becoming slightly more dovish.

For the first week in four fund investors were net sellers of fund assets (including those of conventional funds and exchange-traded funds [ETFs]), withdrawing a net $4.6 billion for the fund-flows week. While investors were net sellers of money market funds (-$6.5 billion) and equity funds (-$0.9 billion), they padded the coffers of taxable bond funds (+$1.9 billion) and municipal bond funds (+$0.9 billion).

For the third week in a row equity ETFs witnessed net inflows, taking in $3.2 billion. As a result of the strong market rally, authorized participants (APs) were net purchasers of domestic equity ETFs (+$1.6 billion), injecting money into the group for the third consecutive week, and for a second week running nondomestic equity ETFs attracted net new money, this past week to the tune of $1.5 billion. iShares Core MSCI Emerging Markets ETF (NYSEARCA:IEMG) (+$1.0 billion), Health Care Select Sector SPDR Fund (NYSEARCA:XLV) (+$536 million), and SPDR Gold Trust (NYSEARCA:GLD) (+$434 million) attracted the largest amounts of net new money of all individual equity ETFs. At the other end of the spectrum WisdomTree Japan Hedge Equity ETF (NYSEARCA:DXJ) (-$475 million) experienced the largest net redemptions, while Financial Select Sector SPDR Fund (NYSEARCA:XLF) (-$353 million) suffered the second largest net redemptions for the week.

For the thirteenth week running conventional fund (ex-ETF) investors were net redeemers of equity funds, redeeming $4.0 billion from the group. Domestic equity funds, handing back a little more than $3.5 billion, witnessed their eighteenth consecutive week of net outflows but posted a weekly performance gain of 1.35% (for their third week in a row of plus-side returns). Meanwhile, their nondomestic equity fund counterparts, posting a 2.36% gain for the week, witnessed net outflows (-$0.5 billion) for the third consecutive week. On the domestic side investors lightened up on large-cap funds and mid-cap funds, redeeming a net $2.4 billion and $530 million, respectively. On the nondomestic side global equity funds witnessed $352 million of net outflows.

For the ninth week in ten taxable bond funds (ex-ETFs) witnessed net inflows, taking in a little over $363 million. Corporate investment-grade bond funds witnessed the largest net inflows, taking in $547 million (for their tenth week in a row of net inflows), while corporate high-yield funds witnessed the second largest net inflows (+$531 million) of the macro-group. Flexible funds witnessed the largest net redemptions of the group, handing back $625 million for the week. For the thirty-sixth week in a row municipal bond funds (ex-ETFs) witnessed net inflows, taking in $717 million this past week.