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U.S. Weekly FundFlows Insight Report: Equity Fund Investors Take '19 Profits Off The Table, Embrace Fixed Income Funds

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Includes: BKLN, IVV, LQD, SHV, SPY, SPYV, TLT, XLI
by: Tom Roseen
Tom Roseen
Mutual fund analyst, research analyst, ETF investing, closed-end funds
Summary

For the third week running, investors were overall net purchasers of fund assets.

Fund investors were net purchasers of taxable fixed income funds (+$12.2 billion), money market funds (+$4.3 billion), and municipal bond funds (+$2.9 billion).

They were net redeemers of equity funds (-$9.2 billion) this week.

For the third week running, investors were overall net purchasers of fund assets (including those of conventional funds and ETFs), injecting $10.2 billion for Lipper's fund-flows week ended January 8, 2020. Fund investors were net purchasers of taxable fixed income funds (+$12.2 billion), money market funds (+$4.3 billion), and municipal bond funds (+$2.9 billion). However, once again, they were net redeemers of equity funds (-$9.2 billion) this week.

Market Wrap-Up

For the fund-flows week ended January 8, 2020, investors warmed to the U.S./China trade discussions, news that the People's Bank of China (PBOC) lowered its reserve requirement for commercial banks, and the Federal Reserve Board's general economic optimism, while keeping a keen eye on developments between the U.S. and Iran. During the fund-flows week, all three broadly followed U.S. indices set new record closes at various times. The NASDAQ Composite Price Only Index (+1.75%) 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 (+0.72%), while the Russell 2000 Price Only Index (-0.29%) suffered the only negative returns. Overseas, the Shanghai Composite Price Only Index (+0.89%) posted the only plus-side returns of the often-followed broad-based global indices, while the Nikkei 225 Price Only Index (-1.87%) suffered the largest declines.

On Thursday, January 2, all three major U.S. stock market indices set new record closes on the day as investors cheered the PBOC lowering its reserve requirements by 0.5 percentage points for commercial banks, China's manufacturing sector grew for the fifth straight month, and the U.S. first-time jobless applications declined in the week ended December 28. However, on Friday, January 3, the Dow logged its largest decline in four weeks after the Institute of Supply Management (ISM) reported a decline in its manufacturing purchasing managers' index, which fell to 47.2% - its lowest since June 2009 - and the U.S. military killed a top Iranian general in an airstrike, sending oil, gold, and U.S. Treasury instruments higher. Oil settled up 3.1% on the day to close at $63.05 per barrel.

On Monday, January 6, the U.S. stock market ended higher as investors appeared to shake off U.S./Iranian concerns, after the December IHS Markit U.S. service sector purchasing managers' index came in at 52.8, signaling continued expansion. However, on Tuesday, U.S. stock benchmarks closed slightly lower as concerns about escalating tensions in the Middle East outweighed optimistic economic data, with the December ISM service sector index rising to 55, a four-month high. Gold and Treasuries rose on the day. Nonetheless, on Wednesday, January 8, the S&P 500 and NASDAQ closed at new highs after President Donald Trump suggested the U.S. and Iran were refraining from additional military action following a retaliatory strike by the Iranians on U.S. bases overnight and after payroll firm Automatic Data Processing estimated that the U.S. private sector added 202,000 new jobs to the economy in December.

Exchange-Traded Equity Funds

For the third week in a row, equity ETFs witnessed net inflows, attracting $8.8 billion for the most recent fund-flows week. Authorized participants (APs) were net purchasers of domestic equity ETFs (+$6.8 billion) for the second consecutive week. Meanwhile, nondomestic equity ETFs witnessed net inflows for the third week running, though they took in $2.0 billion this past week. The SPDR S&P 500 ETF (SPY, +$2.1 billion) and Industrial Select Sector SPDR ETF (XLI, +$1.4 billion) attracted the largest amounts of net new money of all individual equity ETFs. At the other end of the spectrum, the iShares Core S&P 500 ETF (IVV, -$847 million) experienced the largest individual net redemptions, and the SPDR Portfolio S&P 500 Value ETF (SPYV, -$543 million) suffered the second largest net redemptions of the week.

Exchange-Traded Fixed Income Funds

For the fifth consecutive week, taxable fixed income ETFs witnessed net inflows, taking in $2.4 billion. APs were net purchasers of corporate investment-grade debt ETFs (+$1.5 billion) and corporate high-yield ETFs (+$598 million) while being net redeemers of government Treasury ETFs (-$154 million). The iShares Short Treasury Bond ETF (SHV, +$441 million) and the Invesco Senior Loan ETF (BKLN, +$391 million) attracted the largest amounts of net new money of all individual taxable fixed income ETFs. Meanwhile, the iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD, -$649 million) and the iShares 20+ Year Treasury Bond ETF (TLT, -$532 million) handed back the largest individual net redemptions for the week. For the fourteenth week in a row, municipal bond ETFs witnessed net inflows, taking in $558 million, its third largest weekly net inflow on record.

Conventional Equity Funds

For the forty-second consecutive week, conventional fund (ex-ETF) investors were net redeemers of equity funds, withdrawing $18.0 billion. Domestic equity funds, handing back a little more than $15.2 billion, witnessed their second weekly net outflows while posting a 0.75% return on average for the fund-flows week. Their nondomestic equity fund counterparts, posting a 0.19% gain on average, witnessed their eighth consecutive week of net outflows, handing back some $2.9 billion this past week. On the domestic equity side, fund investors turned their backs on large-cap funds (-$10.4 billion) and small-cap funds (-$2.5 billion), while investors on the nondomestic equity side were net sellers of international equity funds (-$2.7 billion) and global equity funds (-$0.2 billion).

Conventional Fixed Income Funds

For the second week in three, taxable bond funds (ex-ETFs) witnessed net inflows, attracting some $9.8 billion this past week, while posting a 0.18% return for the fund-flows week. Investors were net purchasers of corporate investment-grade debt funds (+$6.7 billion) and flexible funds (+$1.8 billion), while balanced funds (-$653 million) witnessed the only net outflows of the group. For the fifty-third straight week, municipal bond funds (ex-ETFs) witnessed net inflows-taking in $2.3 billion - their largest weekly net inflows going back to 1992 (when Lipper began tracking weekly flows), while posting a 0.57% gain on average for their second straight weekly market gain.

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