by Tom Roseen
Despite better-than-expected economic news released during the fund-flows week ended March 29, 2017, investors continued to bid equities down as Republicans in the House of Representatives initially delayed the vote for and then eventually pulled the controversial healthcare replacement bill after failing to gain enough votes to pass it. This failure led some pundits to question the Trump administration's ability to implement its aggressive economic agenda, which many believe has been the catalyst for the recent post-election market rally.
However, for the first week in three fund investors were net purchasers of fund assets (including those of conventional funds and exchange-traded funds [ETFs]), injecting $6.0 billion. While investors were net sellers of money market funds (-$1.6 billion), they were net purchasers of taxable bond funds (+$5.5 billion), equity funds (+$1.8 billion), and municipal bond funds (+$0.3 billion).
At the beginning of the fund-flows week investors were digesting the delay of the closely watched healthcare vote and an unexpected rise in the prior week's first-time jobless claims, which hit a two-month high. On Friday, March 24, financial stocks were clobbered after the House scrapped the health bill, raising concerns about the outlook for corporate tax cuts, infrastructure spending, and deregulation. As a result of the general market decline, the Dow Jones Industrial Average (-1.52%) suffered its worst one-week decline since the week ended September 9, 2016. On Monday the Dow closed down for its eighth consecutive day, marking its longest losing streak since August 2011. However, it's worth mentioning that most of the daily declines had been less than 0.1%, and year to date the Dow was still in positive territory (+3.99%). Along with the stalemate over the healthcare bill, investors weighed hawkish comments by Chicago Fed President Charles Evans that the central bank could raise rates four times this year. A better-than-expected consumer confidence reading (its highest level in more than 16 years) and a report showing a rise in home prices to a 31-month high helped the Dow snap its losing streak on Tuesday. While investors kept a watchful eye on the U.K.'s official start of its withdrawal from the European Union, on the last trading day of the flows week the S&P 500 got a boost from energy shares as a decline in U.S. gasoline inventories boosted the sector; near-month oil prices settled up 2.36% at $49.51 per barrel on the day.
For the eighth week in nine equity ETFs witnessed net inflows, attracting just a little over $3.9 billion for the flows week. Authorized participants (APs) were net purchasers of domestic equity ETFs (+$1.4 billion), injecting money into the group for the sixth week in seven. For the fourteenth week running nondomestic equity ETFs also witnessed net inflows, this past week attracting $2.5 billion. SPDR S&P 500 ETF (NYSEARCA:SPY) (+$3.0 billion), PowerShares QQQ Trust 1 (NASDAQ:QQQ) (+$1.2 billion), and iShares Core MSCI Emerging Markets ETF (NYSEARCA:EEM) (+$0.5 billion) attracted the largest amounts of net new money of all individual equity ETFs. At the other end of the spectrum First Trust Energy AlphaDEX ETF (NYSEARCA:FXN) (-$682 million) experienced the largest individual net redemptions, and iShares Russell 2000 ETF (NYSEARCA:IWM) (-$349 million) suffered the second largest net redemptions for the week.
For the sixth week in seven conventional fund (ex-ETF) investors were net redeemers of equity funds, redeeming $2.2 billion. Domestic equity funds, handing back a little more than $1.0 billion, witnessed their thirteenth week of net outflows despite posting a 0.89% return on average for the flows week. Meanwhile, their nondomestic equity fund counterparts, posting a 1.00% return on average for the week, witnessed net outflows (-$1.1 billion) for the second week in three. On the domestic equity side fund investors continued to lighten up on large-cap funds (-$1.2 billion net), while on the nondomestic side they shunned international equity funds (-$0.6 billion).
For the second consecutive week taxable bond funds (ex-ETFs) witnessed net inflows, taking in $4.5 billion. Corporate investment-grade debt funds witnessed the largest net inflows of the group, taking in $3.4 billion, while flexible portfolio funds (+$698 million) and government mortgage funds (+$660 million) witnessed the next largest net inflows. Government/Treasury & mortgage funds (-$446 million) and corporate high-yield funds (-$121 million) witnessed the largest net redemptions of the group for the week. With increased hawkish rhetoric from Fed officials during the week, it wasn't too surprising to see Thomson Reuters Lipper's Inflation-Protected Bond Funds classification taking in money for the twenty-first consecutive week (+$51 million) and bank loan funds witnessing their twentieth week of net inflows, attracting some $333 million for the week. For the second week in a row municipal bond funds (ex-ETFs) witnessed net inflows, taking in some $124 million for the week.