By Tom Roseen
In spite of the Bank of England's (BOE) decision to leave its monetary policy unchanged, a horrific terrorist attack in Nice, and a failed coup attempt in Turkey, investors pushed the U.S. broad indices into record territory for the fund flows week ended July 20, 2016. This was after reports indicated June sales at U.S. retailers rose, housing starts had jumped (signaling that new home construction continued to amble forward), and Thomson Reuters Proprietary Research Team reporting that 67% of the S&P 500 constituents that had reported Q2 earnings thus far (70) had beat expectations.
Early in the flows week, Treasury yields rose as investors put more risk on their portfolios, with the Dow Jones Industrial Average posting its third consecutive week of plus-side returns on Friday, July 15, despite an increase in May business inventories and a decline in consumer sentiment in July. The U.S. government had reported an increase in spending at home-and-garden centers and at online stores, and Chinese data showed the country's gross domestic product grew in the second quarter. The rally in stocks continued, supported by upbeat earnings reports from a few financial companies and M&A news in the technology sector. Although the German ZEW economic sentiment survey declined to its lowest level since 2012 on "Brexit" fears, reports showed that U.S. housing starts rose 4.8% for June, beating consensus estimates and shoring up some investor resolve. In spite of trading in a narrow range, the Dow finished the flows week with its seventh consecutive record closing high as technology stocks continued to rally after a spate of corporate earnings beat lowered expectations.
Despite the broad-based indices hitting multiple record highs during the week, for the second week in three, fund investors were net sellers of fund assets (including those of conventional funds and exchange-traded funds [ETFs]), withdrawing a net $7.6 billion for the fund flows week. Investors padded the coffers of taxable bond funds (+$3.0 billion) and municipal bond funds (+$1.0 billion), while they were net redeemers of equity funds (-$2.8 billion) and money market funds (-$8.8 billion).
Equity ETFs witnessed net inflows, taking in $4.3 billion for the week. As a result of increasingly stronger U.S. equity returns, authorized participants (APs) were net purchasers of domestic equity ETFs (+$1.3 billion), injecting money into the group for the eighth week in nine, while for the second week in a row - because of an improving view of the Brexit - non-domestic equity ETFs were net attractors of AP assets, taking in $3.0 billion this past week. The iShares MSCI Emerging Markets ETF (NYSEARCA:EEM) (+$2.8 billion), the Financial Select Sector SPDR ETF (NYSEARCA:XLF) (+$426 million), and the iShares Core S&P 500 ETF (NYSEARCA:IVV) (+$404 million) attracted the largest amounts of net new money of all individual equity ETFs. At the other end of the spectrum, the SPDR S&P 500 ETF (NYSEARCA:SPY) (-$1.1 billion) experienced the largest net redemptions, while PowerShares QQQ Trust 1 ETF (NASDAQ:QQQ) (-$516 million) suffered the second largest net redemptions for the week.
For the nineteenth week running, conventional fund (ex-ETF) investors were net redeemers of equity funds, redeeming $7.1 billion from the group. Domestic equity funds, handing back a little less than $5.8 billion, witnessed their twenty-fourth consecutive week of net outflows, but they posted a weekly performance gain of 0.82% (for their third straight week of plus-side returns). Meanwhile, their non-domestic equity fund counterparts, posting a 0.95% gain for the week, also witnessed net outflows (-$1.4 billion) for a fourth consecutive week. On the domestic side, investors lightened up on large-cap funds and small-cap funds, redeeming a net $3.7 billion and $1.1 billion, respectively. On the non-domestic side, international equity funds witnessed $1.2 billion of net outflows.
For the second consecutive week, taxable bond funds (ex-ETFs) witnessed net inflows, taking in a little over $2.4 billion. Corporate high-yield funds witnessed the largest net inflows, taking in $0.8 billion, while international and global debt funds witnessed the second largest net inflows (+$0.7 billion) of the macro-group. Balanced funds witnessed the only net redemptions of the macro-group, handing back just $23 million for the week. For the forty-second consecutive week, municipal bond funds (ex-ETFs) witnessed net inflows, attracting some $0.8 billion this past week.