By Patrick Keon
Lipper's fund asset groups (including both mutual funds and ETFs) suffered net outflows of $40.2 billion for the abbreviated fund-flows trading week ended Tuesday, December 4. Markets were closed on Wednesday, December 5 in accordance with the national day of mourning to honor the late former President George H.W. Bush. All four asset classes suffered negative net flows paced by money market funds (-$34.4 billion) while taxable bond funds, municipal bond funds, and equity funds saw $4.8 billion, $692 million, and $289 million leave their coffers, respectively.
The S&P 500 Index (-1.59%) and the Dow Jones Industrial Average (-1.34%) both retreated during the fund-flows trading week. This negative performance reduced the year-to-date gains for the Dow and the S&P 500 to 1.25% and 0.99%. Both markets suffered the lion's share of their losses on the last trading day of the week due to the impact of a flattening yield curve and investor concerns about the trade tensions between the U.S. and China. The spread between the two-year yield and ten-year yield narrowed to its slimmest margin (11 basis points) since June 2007. The markets took notice as the yield curve approached inversion (short-dated yields higher than longer-dated ones) as an inverted yield curve has been a reliable predictor of recessions in the past. The G-20 meeting in Argentina ended without any specific concessions from China which raised speculation that the U.S. and China would not finalize a deal and the trade war between the two countries would continue.
ETFs had positive net inflows (+$12.6 billion) for the seventh consecutive week. The lion's share of the net inflows were attributable to equity ETFs (+$12.1 billion), with muni bond ETFs and taxable bond ETFs contributing $258 million and $158 million to the total net inflows. The largest net inflows among individual equity ETFs belonged to the SPDR S&P 500 ETF (SPY, +$3.2 billion) and the iShares Core MSCI Emerging Markets ETF (IEMG, +$1.3 billion). The net inflows for the muni debt ETF group were heavily concentrated, with the iShares National Municipal Bond ETF (NYSEARCA:MUB) accounting for $325 million in positive net flows while the iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD, +$220 million) had the largest net inflow in the taxable bond ETF group.
Equity Mutual Funds
Equity mutual funds suffered net outflows (-$12.4 billion) for a twenty-fourth consecutive week. During this time frame, the group had negative net flows of over $108 billion. Both domestic equity funds (-$8.3 billion) and non-domestic equity funds (-$4.1 billion) saw money leave their coffers leave this week. Domestic equity funds were also responsible (-$75.3 billion) for the majority of the net outflows during the twenty-four-week losing streak.
Fixed Income Mutual Funds
Both the taxable bond (-$5.0 billion) and muni debt (-$1.0 billion) mutual fund groups suffered net outflows for the second straight week. The net outflows on the taxable bond side of the ledger were almost universal as twenty-seven out of thirty-two peer groups saw money leave with the largest belonging to the Loan Participation Funds (-$1.1 billion) classification. The General Muni Debt Fund peer group (-$548 million) posted the largest net outflow for muni debt funds.
Money Market Mutual Funds
The net outflows for money market funds (-$34.4 billion) were the third largest this year and the most since the fund-flows week ended June 20 (-$51.0 billion). The Institutional U.S. Government Money Market Funds (-$17.1 billion) and Institutional U.S. Treasury Money Market Funds (-$10.7 billion) were responsible for most of this week's net outflows.