By Patrick Keon
Thomson Reuters Lipper's fund asset groups (including both mutual funds and ETFs) suffered net outflows of $24.5 billion for the fund-flows week ended Wednesday, April 18. Money market funds (-$34.9 billion) were responsible for the lion's share of the net-negative flows, and municipal bond funds (-$515 million) experienced a limited amount of net outflows. Taxable bond funds (+$6.3 billion) and equity funds (+$4.6 billion) both saw their coffers grow for the week.
The start of the Q1 2018 corporate earnings season drove the markets to impressive gains for the week, with the S&P 500 Index and the Dow Jones Industrial Average appreciating 2.51% and 2.31%, respectively. It was the first time this year that both indices returned more than 2.0% for a fund-flows trading week. An optimistic view toward first quarter earnings was the driving factor behind much of these gains as consensus estimates indicated S&P 500 companies were expected to grow earnings at greater than 17.0% - the highest level since 2011. If corporate earnings were to meet or exceed expectations, that would go a long way to alleviating fears that stock fundamentals can't support the current valuations. Of note, Netflix (NASDAQ:NFLX) (+9.2%) and UnitedHealth (NYSE:UNH) (+3.6%) posted impressive one-day returns after beating Wall Street estimates, while IBM's (NYSE:IBM) stock presented the other side of the spectrum. Shares of IBM fell 7.5% in one trading day despite beating earnings and revenue estimates; the Street was more focused on and weighted more heavily the cautious earnings guidance provided by IBM for the remainder of 2018 as well as the slowing growth in a key business segment.
ETFs took in net new money (+$9.4 billion) for the second consecutive week. The net inflows were concentrated in the equity (+$5.6 billion) and taxable bond (+$3.9 billion) asset classes. On the equity side of the equation, the PowerShares QQQ (QQQ, +$1.9 billion) and iShares Russell 2000 ETF (IWM, +$794 million) contributed the largest individual net inflows, while for taxable bond ETFs, it was the SPDR Bloomberg Barclays High Yield Bond ETF (JNK, +$797 million) and iShares Core US Aggregate Bond ETF (AGG, +$629 million). Municipal bond ETFs suffered net outflows of $61 million for the week.
Equity Mutual Funds
Equity mutual funds had net outflows of just over $1.0 billion for the week. Following the long-term trend, nondomestic equity funds (+$472 million) took in net new money, while domestic equity funds had net outflows of $1.5 billion. The largest net-positive flows among nondomestic equity funds belonged to Lipper's Emerging Markets Funds peer group (+$493 million), and the largest net-negative flows for domestic equity funds were attributable to Equity Income Funds (-$781 million).
Fixed Income Mutual Funds
Taxable bond mutual funds (+$2.4 billion) had positive net flows, while municipal bond mutual funds (-$454 million) saw net money leave. The largest net inflows for taxable bond funds belonged to High Yield Funds (+$1.8 billion) and Core Plus Bond Funds (+$589 million), while the majority of net outflows for the muni debt funds group came from the Short Muni Debt Funds (-$338 million).
Money Market Mutual Funds
The net outflows for money market mutual funds (-$34.9 billion) was the group's largest reimbursements in over two years (-$35.9 billion for the fund-flows week ended March 16, 2016). All the money market peer groups participated in the net outflows, with Institutional U.S. Treasury Money Market Funds (-$13.4 billion) and Institutional U.S. Government Money Market Funds (-$12.1 billion) seeing the most money leave.