By Tom Roseen
For the second week in a row investors were net purchasers of fund assets (including those of conventional funds and ETFs), injecting $19.5 billion. Investors padded the coffers of money market funds (+$17.7 billion), taxable bond funds (+$1.9 billion), and municipal bond funds (+$241 million) for the week, while they were net redeemers of equity funds (-$410 million). Despite an initial flight to safety at the beginning of the fund-flows week ended Wednesday, September 13, 2017, as a result of another major hurricane threatening the U.S. and on fear of North Korea's conducting another missile test, investors pushed the major indices to new records. For the fund-flows week the Russell 2000 Price Only Index and the Dow Jones Industrial Average Price Only Index gained 1.73% and 1.61%, respectively, as Hurricane Irma's destruction-while still devastating-wasn't as severe as originally forecast and as North Korea didn't conduct a missile test.
At the beginning of the fund-flows week investors bid up safe-haven plays while turning a cold shoulder to risky assets. Banking stocks fell after the ten-year Treasury yield declined to 2.06% on Thursday, September 7, as investors focused on the devastating hurricanes battering the Caribbean and the escalation of nuclear threats from North Korea. On Friday investors kept their collective foot off the pedal as Hurricane Irma dealt a devastating blow to Barbuda and St. Martin, virtually destroying these two small islands and moving toward Florida. The Category-5 hurricane was expected to make landfall over the weekend. Although Irma slammed the Florida Keys and south Florida, she delivered lighter-than-expected damage, which helped push many of the battered insurance companies into positive territory on Monday. As a result of a relief rally and North Korea's not conducting another missile test over the weekend, the S&P 500 hit a record on the day and the Dow posted its largest one-day gain in six months. On Tuesday all three major indices hit record closes after data from the Department of Labor showed that job openings in the U.S. hit records in July and as Census Bureau data showed that incomes in the U.S. jumped in 2016, supporting signs of a growing, healthy economy. On Wednesday the major indices booked yet another round of record highs, with energy and consumer-discretionary shares leading the pack. Oil prices advanced on the day after OPEC considered adding more non-Cartel members to its reduced output deal and after the IEA indicated there were signs of a tightening oil market.
Exchange-Traded Equity Funds
For the third week in a row equity ETFs witnessed net inflows, taking in a little less than $4.2 billion for the flows week. Authorized participants (APs) were net purchasers of domestic equity ETFs (+$2.9 billion), injecting money into the group also for the third week in a row. And for the third week in four nondomestic equity ETFs witnessed net inflows, this past week taking in $1.3 billion. The SPDR S&P 500 ETF (NYSEARCA:SPY) (+$2.3 billion), iShares Core MSCI EAFE (BATS:IEFA) (+$828 million), and Consumer Staples Select Sector SPDR ETF (NYSEARCA:XLP) (+$714 million) attracted the largest amounts of net new money of all individual equity ETFs. At the other end of the spectrum, the Industrial Select Sector SPDR ETF (NYSEARCA:XLI) (-$587 million) experienced the largest individual net redemptions, and the SPDR Dow Jones Industrial Average (NYSEARCA:DIA) (-$277 million) suffered the second largest net redemptions of the week.
Exchange-Traded Fixed Income Funds
For the tenth week running fixed income ETFs attracted net new money, this past week some $2.8 billion. APs padded the coffers of government-Treasury ETFs (+$3.0 billion) and government-mortgage ETFs (+$155 million) while turning their backs on corporate high-yield ETFs, redeeming $211 million net. The iShares 20+ Treasury Bond ETF (+$1.7 billion) and iShares 3-7 Treasury Bond ETF (+$670 million) attracted the largest amounts of net new money of all individual fixed income ETFs, while the iShares iBoxx $ Investment Grade Corporate Bond ETF (NYSEARCA:LQD) (-$652 million) handed back the largest individual net redemptions for the week.
Conventional Equity Funds
For the twenty-fifth consecutive week conventional fund (ex-ETF) investors were net redeemers of equity funds, redeeming $4.6 billion. Domestic equity funds, handing back a little more than $2.9 billion, witnessed their thirty-seventh week of net outflows while posting a 1.46% return on average. Meanwhile, their nondomestic equity fund counterparts, posting a 1.50% return on average, witnessed net outflows (+$1.7 billion) for the first week in four. On the domestic equity side fund investors shunned large-cap funds (-$2.3 billion net), while on the nondomestic side they were net redeemers of global equity funds (-$1.5 billion).
Conventional Fixed Income Funds
For the first week in three taxable bond funds (ex-ETFs) witnessed net outflows, handing back $927 million. Fund investors padded the coffers of government/Treasury & mortgage funds (+143 million) and corporate investment-grade debt funds (+$135 million). Balanced funds (-$1.1 billion) witnessed the largest net redemptions for the week, bettered by flexible funds (-$301 million). Thomson Reuters Lipper's Inflation-Protected Bond Funds classification witnessed its second consecutive week of net inflows (+$56 million this past week) after the ECB held rates steady and as ECB president Mario Draghi indicated the decision on how to move away from easy money will come in October; bank loan funds (-$115 million) witnessed net redemptions for the fourth consecutive week. For the ninth consecutive week municipal bond funds (ex-ETFs) witnessed net inflows, taking in some $313 million, while posting a negative return on average (-0.14%).