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U.S. Weekly FundFlows Insight Report: APs Embrace Equity ETFs While Fund Investors Continue To Prefer Bond Funds During The Week

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Includes: BIL, EMB, JPST, QQQ, SCHO, SDY, SPLV, SPY
by: Tom Roseen
Tom Roseen
Mutual fund analyst, research analyst, ETF investing, closed-end funds
Summary

For the tenth week in a row, investors were overall net purchasers of fund assets (including those of conventional funds and ETFs), injecting $37.0 billion for Lipper's fund-flows week ended November 6, 2019.

Once again, fund investors were net purchasers of money market funds (+$34.4 billion), taxable fixed income funds (+$1.5 billion), and municipal bond funds (+$1.1 billion).

However, they were net redeemers of equity funds this week, although they sold only $59 million in assets.

For the tenth week in a row, investors were overall net purchasers of fund assets (including those of conventional funds and ETFs), injecting $37.0 billion for Lipper's fund-flows week ended November 6, 2019. Once again, fund investors were net purchasers of money market funds (+$34.4 billion), taxable fixed income funds (+$1.5 billion), and municipal bond funds (+$1.1 billion). However, they were net redeemers of equity funds this week, although they sold only $59 million in assets.

Market Wrap-Up

For the fund-flows week ended November 6, 2019, investors were more sanguine over Sino-American trade negotiations, better-than-expected Q3 earnings reports, and better-than-feared forward guidance. During the fund-flows week, all three broadly-followed U.S. indices closed at record highs and the October nonfarm payrolls beat analyst expectations. As the Q3 earnings season nears its end, investors were cheered by the news from Refinitiv's proprietary research team that of the 430 S&P 500 constituents that have reported earnings thus far, 74% have beaten analyst expectations. The NASDAQ Composite Price Only Index (+1.28%) posted the strongest returns of the broadly followed U.S. indices for the fund-flows week, followed by the Dow Jones Industrial Average Price Only Index (+1.13%), while the S&P 500 Price Only Index (+0.98%) was the relative laggard. Overseas, the Shanghai Composite Price Only Index (+2.20%) and the Nikkei 225 Price Only Index (+1.88%) posted the strongest plus-side returns of the subgroup for the fund-flows week, while the FTSE 100 Price Only Index (+0.92%) posted the weakest returns of the other often followed broad-based global indices.

Stocks declined slightly on Thursday, October 31, as worries over the U.S./China trade deal, signs of a slowdown in manufacturing, and mixed Q3 earnings weighed on investors. According to a Bloomberg report, Chinese officials voiced some doubts about their ability to consummate a long-term deal with the U.S. However, news from the day before that the Federal Reserve Board cut its benchmark interest rate, but signaled a pause in its monetary policy setting, helped mitigate market declines. Then on Friday, November 1, the S&P 500 and NASDAQ composite closed at new record highs after the Labor Department reported that the U.S. economy added 128,000 new jobs in October, beating analyst expectations of 75,000. Investors appeared to shrug off news that the Institute of Supply Management's manufacturing index came in at 48.3%, missing analysts' expectations of 49%, and continued to signal contraction.

On Monday, November 4, all three major U.S. stock indices closed at record highs as optimism over a near-term U.S./China trade deal and a continuation of a good Q3 earnings season improved investor sentiment. Over the weekend, comments by U.S. Commerce Secretary Wilbur Ross helped ease investors' fears after he expressed optimism over the phase-one trade deal. On Tuesday, November 5, the Dow and NASDAQ closed again at new highs after the Wall Street Journal reported that U.S. and Chinese officials were considering rolling back some tariffs to complete the trade agreement. The markets got a shot in arm after learning the October ISM service sector index rose to 54.7% from 52.6% in September. Stocks ended mixed on Wednesday after a report indicated that the interim Sino-American trade deal could be delayed until December.

Exchange-Traded Equity Funds

For the fourth week in a row, equity ETFs witnessed net inflows, attracting $5.5 billion for the most recent fund-flows week. Authorized participants (APs) were net purchasers of domestic equity ETFs (+$3.1 billion) for the second consecutive week. Meanwhile, non-domestic equity ETFs witnessed net inflows for the sixth week running - taking in $2.4 billion this past week. SPDR S&P ETF (SPY, +$1.2 billion) and Invesco QQQ ETF (QQQ, +$969 million) attracted the largest amounts of net new money of all individual equity ETFs. At the other end of the spectrum, SPDR S&P Dividend ETF (SDY, -$1.4 billion) experienced the largest individual net redemptions, and Invesco S&P 500 Low Volatility ETF (SPLV, -$529 million) suffered the second largest net redemptions of the week.

Exchange-Traded Fixed Income Funds

For the first week in seven, taxable fixed income ETFs witnessed net outflows, handing back $1.5 billion. APs were net purchasers of international & global debt ETFs (+$395 million) and flexible ETFs (+$316 million) while being net redeemers of government-Treasury ETFs (-$1.6 billion) and corporate high-yield ETFs (-$745 million). iShares JP Morgan USD Emerging Markets Bond ETF (EMB, +$456 million) and JPMorgan Ultra-Short Income ETF (JPST, +$337 million) attracted the largest amounts of net new money of all individual taxable fixed income ETFs. Meanwhile, Schwab Short-Term U.S. Treasury ETF (SCHO, -$510 million) and SPDR Bloomberg Barclays 1-3 Month T-Bill ETF (BIL, -$498 million) handed back the largest individual net redemptions for the week. For the fifth week in a row, municipal bond ETFs witnessed net inflows, taking in $152 million.

Conventional Equity Funds

For the thirty-eighth consecutive week, conventional fund (ex-ETF) investors were net redeemers of equity funds, withdrawing $5.5 billion. Domestic equity funds, handing back a little more than $3.3 billion, witnessed their thirty-ninth weekly net outflows while posting a 0.77% return on average for the fund-flows week. Their non-domestic equity fund counterparts, posting a 1.32% gain on average, witnessed their twelfth consecutive week of net outflows, handing back some $2.2 billion this past week. On the domestic equity side, fund investors turned their backs on large-cap funds (-$2.7 billion) and small-cap funds (-$707 million), while investors on the non-domestic equity side were net sellers of international equity funds (-$1.9 billion) and global equity funds (-$338 million).

Conventional Fixed Income Funds

For the fifth consecutive week, taxable bond funds (ex-ETFs) witnessed net inflows, attracting some $3.0 billion this past week while posting a 0.30% return for the fund-flows week. Investors were net purchasers of corporate investment-grade debt funds (+$2.1 billion) and flexible funds (+$423 million), while government-Treasury funds (-$145 million) witnessed the largest net outflows of the group. For the forty-fourth straight week, municipal bond funds (ex-ETFs) witnessed net inflows - taking in $951 million - while posting a 0.26% gain on average for their first weekly market gain in four.

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