U.S. Weekly FundFlows Insight Report: Fund Investors Take A Risk-Off Approach For The Week

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Includes: HYG, IEFA, LQD, PWV, SPY, TLT, TQQQ
by: Tom Roseen

For the second week in three, investors were net redeemers of fund assets (including those of conventional funds and ETFs), withdrawing $3.3 billion net for Lipper's fund-flows week ended September 12, 2018. Fund investors padded the coffers of taxable fixed income funds (+$2.4 billion) but were net redeemers of money market funds (-$3.8 billion), equity funds (-$1.8 billion), and municipal bond funds (-$136 million).

Market Wrap-Up

Investors took their collective foot off the pedal for the fund-flows week as they continued to focus on escalating trade-war rhetoric between the U.S. and China and the large currency declines for Argentina and Turkey. The Dow Jones Industrial Average Price Only Index (+0.09%) and the S&P 500 Price Only Index (+0.01%) were the only U.S. broad-based indices posting plus-side returns for the flows week. Meanwhile, the NASDAQ Composite and the Russell 2000 Price Only Index were in the red, losing 0.51% and 0.69%, respectively, for the week. Overseas, investors gave a cold shoulder to emerging markets, pushing the Shanghai Composite Price Only Index (-2.19%) to the bottom of the group, bettered by the FTSE 100 Price Only Index (-0.44%). The Nikkei 225 Price Only Index (+0.39%) was the only bright spot of the broadly followed overseas indices.

At the beginning of the flows week, investors sent the broad-based indices to their third day of negative returns on mounting concerns of spillover from a small subset of the emerging-market economies. Crumbling confidence in Argentina and Turkey pressured both countries' currency and caused some investors to shun emerging markets as a whole, given the ongoing trade war concerns. Despite continuing talks between the U.S. and Canada, investors focused their attention on the Donald Trump administration's plan to add an additional $200 billion in tariffs on Chinese goods, pushing investors into a risk-off mode for the week. That was in spite of the initial jobless claims of the prior week dropping to their lowest level since 1969 and the August ISM reading on the service sector rising to 58.5% from July's 55.7%. On Friday, September 7, the declines continued after investors shrugged off a better-than-expected August nonfarm-payrolls report that showed the U.S. economy had added 201,000 jobs as President Trump threatened an additional $267 billion in tariffs on top of the $200 billion cited earlier. While the unemployment rate for August remained the same (3.9%), wage growth showed signs of heating up.

On Monday, September 10, U.S. stocks snapped their four-day losing streak as technology shares recovered from their brief decline, despite Apple (NASDAQ:AAPL) losing 1.3% on the day after President Trump tweeted that Apple should shift production out of China to the U.S. Nonetheless, on Tuesday, the mega-cap tech issues rallied, with Apple, Facebook (NASDAQ:FB), and Microsoft (NASDAQ:MSFT) all rising strongly on the day as trade worries decreased after officials from the U.S. and E.U. met on Monday to discuss a trade pact. Oil rallied on the day, and investors learned that small-business sentiment rose to a record in August and that U.S. job openings had jumped to a record 6.94 million for July. While the market posted small gains on the last day of the flows week, crude oil prices got a shot in the arm as Hurricane Florence raced toward North Carolina and raised concerns of supply disruptions in the region.

Exchange-Traded Equity Funds

For the eighth week in nine, equity ETFs witnessed net inflows, taking in a little more than $2.1 billion for the flows week. Authorized participants (APs) were net purchasers of domestic equity ETFs (+$2.6 billion), adding money to the group for the fourth week in five. However, for the second consecutive week, nondomestic equity ETFs witnessed net outflows, this past week handing back $461 million. SPDR S&P 500 ETF (NYSEARCA:SPY) (+$1.6 billion), ProShares UltraPro QQQ ETF (NASDAQ:TQQQ) (+$625 million), and iShares Core MSCI EAFE ETF (BATS:IEFA) (+$489 million) attracted the largest amounts of net new money of all individual equity ETFs. At the other end of the spectrum, Invesco QQQ Trust 1 (-$1.3 billion) experienced the largest individual net redemptions, and Invesco Dynamic Large-Cap Value Portfolio ETF (NYSE:PWV) (-$443 million) suffered the second largest net redemptions of the week.

Exchange-Traded Fixed Income Funds

For the third week in four, taxable fixed income ETFs witnessed net inflows, this past week taking in $3.1 billion. APs were net purchasers of corporate investment-grade debt ETFs (+$2.2 billion), government-Treasury ETFs (+$2.1 billion), and international & global debt ETFs (+$203 million) while being net redeemers of corporate high-yield ETFs (-$908 million) and flexible ETFs (-$508 million). iShares 20+ Year Treasury Bond ETF (NYSEARCA:TLT) (+$1.2 billion) and iShares iBoxx $ Investment-Grade Corporate Bond ETF (NYSEARCA:LQD) (+$975 million) attracted the largest amounts of net new money of all individual taxable fixed income ETFs, while iShares iBoxx $ High Yield Corporate Bond ETF (NYSEARCA:HYG) (-$1.0 billion) handed back the largest individual net redemptions for the week. For the second consecutive week, municipal bond ETFs witnessed net outflows, this past week handing back $237 million.

Conventional Equity Funds

For the twelfth week running, conventional fund (ex-ETF) investors were net redeemers of equity funds, removing $3.9 billion. Domestic equity funds, handing back a little more than $1.7 billion, witnessed their seventeenth weekly net outflows while posting a 0.05% return on average for the flows week. Their nondomestic equity fund counterparts, posting a 0.49% loss on average, witnessed their fourth consecutive week of net outflows (-$2.2 billion). On the domestic equity side, fund investors shunned large-cap funds (-$1.4 million net) and equity income funds (-$277 million), while on the nondomestic equity side, investors were net redeemers of global equity funds (-$1.5 billion) and international equity funds (-$766 million).

Conventional Fixed Income Funds

For the second week running, taxable bond funds (ex-ETFs) witnessed net outflows, handing back $678 million this past week. Fund investors padded the coffers of corporate investment-grade debt funds (+$1.0 billion), international & global funds (+$146 million), and government-Treasury & mortgage funds (+$71 million) but were net redeemers of balanced funds (-$1.4 billion) and flexible funds (-$465 million). For the fifth week in six, municipal bond funds (ex-ETFs) witnessed net inflows, taking in $100 million while posting a 0.28% loss on average (their second weekly loss in three).