U.S. Weekly FundFlows Insight Report: Headline Flows Are Misleading This Week

Includes: FXG, FXR, IJH, IVV, SPY
by: Lipper Alpha Insight

By Tom Roseen

During the holiday-shortened flows week ended Wednesday, November 30, 2016, markets continued their post-election ascent, with a few minor pullbacks. Despite continued trepidations over the upcoming OPEC meeting to curtail oil output, investors continued to bet that President-elect Donald Trump's economic plans to implement significant corporate tax cuts, deregulation, and infrastructure development will spur economic growth. Better-than-expected economic reports during the flows week helped keep the rally mostly on track.

On Friday, November 25, in a holiday-shortened trading session following the Thanksgiving break, investors pushed the major indices to a new set of record highs, and the Russell 2000 extended its winning streak to 15 consecutive days (its longest streak since 1996). Nonetheless, continued angst over the upcoming meeting by the major oil-producing nations to discuss a reduction in oil output weighed heavily on crude oil prices and energy stocks. On the following Monday stocks took a short breather, with the major indices pulling back slightly after investors learned that Saudi Arabia had refused to attend an output-reduction meeting with Russia. Despite another slump in oil prices on Tuesday ahead of the Wednesday meeting to cut global oil output, along with concerns about the upcoming Italian referendum and the election in Austria, investors cheered the upwardly revised Q3 GDP reading (showing the economy grew at its fastest pace in over two years) and a surprise increase in the November consumer confidence number. On Wednesday-after nearly two years of negotiations, OPEC surprised most pundits by sealing an output-production agreement, sending near-month crude oil prices up 9.31% to $49.44/barrel for the day. While many investors gave a cold shoulder to the release of the Federal Reserve's Beige Book, which showed moderate economic expansion, they cheered ADP's better-than-expected private-sector employment report for November.

For the third week in a row fund investors were net purchasers of fund assets (including those of conventional funds and exchange-traded funds [ETFs]), injecting $4.6 billion for the fund-flows week. However, given the news of the week, the headline numbers were misleading. Investors padded the coffers of money market funds (+$10.6 billion), but they were net redeemers of equity funds (-$1.0 billion), municipal bond funds (-$2.1 billion), and taxable bond funds (-$3.0 billion).

For the eighth consecutive week equity ETFs witnessed net inflows, taking in just a little over $2.0 billion for the flows week. Authorized participants (APs) were net purchasers of domestic equity ETFs (+$2.0 billion), injecting money into the group for the fourth week in a row. Meanwhile, for the second consecutive week nondomestic equity ETFs also witnessed net inflows, this past week attracting just $48 million. The iShares Core S&P 500 ETF (NYSEARCA:IVV) (+$841 million), the First Trust Industrials AlphaDEX ETF (NYSEARCA:FXR) (+$740 million), and the iShares Core S&P Mid-Cap ETF (NYSEARCA:IJH) (+$342 million) attracted the largest amounts of net new money of all individual equity ETFs. At the other end of the spectrum the First Trust Consumer Staples AlphaDEX ETF (NYSEARCA:FXG) (-$707 million) experienced the largest net redemptions, and the SPDR S&P 500 ETF (NYSEARCA:SPY) (-$617 million) suffered the second largest net redemptions for the week.

For the thirty-eighth week running conventional fund (ex-ETF) investors were net redeemers of equity funds, redeeming $3.0 billion from the group for the week. Domestic equity funds, handing back a little more than $1.8 billion, witnessed their forty-third consecutive week of net outflows and posted a 0.30% loss for the week. Meanwhile, their nondomestic equity fund counterparts, posting a positive 0.37% return for the week, witnessed net outflows (-$1.2 billion) for the second week running. On the domestic equity side fund investors lightened up on large-cap funds (-$1.3 billion), while on the nondomestic side they shunned international equity funds (-$0.8 billion).

For the fifth consecutive week taxable bond funds (ex-ETFs) witnessed net outflows, handing back a little more than $4.1 billion. Corporate investment-grade debt funds witnessed the largest net outflows of the group, handing back $1.5 billion, while corporate high-yield funds witnessed the next largest net outflows (-$0.9 billion). Corporate high-quality debt funds experienced the only net inflows, taking in however a mere $41 million for the week. With investors pricing in a 96.3% chance of a December rate hike, it wasn't too surprising to see Thomson Reuters Lipper's Inflation-Protected Bond Fund classification taking in money for the fourth consecutive week (+$48 million) and bank loan funds witnessing their third week of net inflows, attracting some $220 million for the week. For the third week in a row municipal bond funds (ex-ETFs) witnessed net outflows, this past week handing back $2.1 billion.