U.S. Weekly FundFlows Insight Report: Investment Grade Funds Suffer Largest Weekly Outflows In 85 Weeks

Summary

• During Refinitiv Lipper’s fund-flows week ended December 1, 2021, investors were overall net purchasers of fund assets for the 7th straight week, adding $32.5 billion.
• Exchange-traded equity funds recorded $15.9 billion in weekly net inflows. This is the macro group’s ninth straight week of inflows.
• Conventional equity funds (ex-ETFs) were net redeemers for the eighth week in a row (-$2.8 billion).

aprott/iStock via Getty Images

During Refinitiv Lipper’s fund-flows week ended December 1, 2021, investors were overall net purchasers of fund assets (including both conventional funds and ETFs) for the seventh straight week, adding $32.5 billion.

Money market funds (+$26.3 billion), equity funds (+$13.0 billion), and tax-exempt bond funds (+$36 million) all attracted new money during the fund-flows week.

Taxable bond funds (-$6.8 billion) were the only asset class to suffer outflows. Money market funds have tailed their largest four-week inflow moving average since June 2021.

Index Performance

At the close of Refinitiv Lipper’s fund-flows week, U.S. broad-based indices took it on the chin as both the DJIA (-4.98%) and S&P 500 (-4.01%) logged their worst weekly performance since October 2020.

The small-cap-focused Russell 2000 was hit the hardest (-7.89%) - lowest since March 2021. Even the tech-heavy NASDAQ realized its lowest weekly return (-3.73%) in more than six months.

Not much difference for overseas broad market indices - the Nikkei 225 (-2.58%), DAX 30 (-1.36%), and Shanghai Composite (-0.17%) all depreciated on the week.

Rates/Yields

Treasury yields fell along the yield curve. The two-,10-, and 30-year Treasury yields all fell drastically (-12.58%, -12.77%, and -9.78%, respectively). Since the end of Q3 2022, the two- (+94.81%), three- (+59.54%), and five-year (+16.08%) Treasury yields have significantly outpaced the 10- (-6.09%) and 30-year yields (-14.97%), resulting in a flattening of the yield curve.

The U.S. 30-year fixed-rate mortgage average moved to 3.10%, marking roughly a 12% increase since the beginning of August. The United States Dollar Index (DXY, -0.87%) fell over the week, while the VIX (+41.63%) spiked significantly.

Market Recap

U.S. markets were closed on Thursday, November 25, for the Thanksgiving Day holiday.

The shortened trading day on Friday, November 26, surprisingly showed a lot of activity. Black Friday, which typically sees muted trading volume observed equity markets plummet more than 2.0% each - the Russell 2000 (-3.67%) and DJIA (-2.53%) were the largest detractors on the day.

Despite the Department of Labor last week reporting jobless claims falling below 199,000 - the lowest level since November 1969, a new COVID-19 variant (named omicron) drove market sentiment.

Uncertainty also sent Treasury yields down; each falling by its largest daily percentage in more than one year - two-year (-19.25%), 10-year (-9.67%), and 30-year (-7.15%) are the most followed maturities. The VIX ended the shortened session up 54.04%.

Monday, November 29, witnessed a bounce back in the equity markets - NASDAQ (+1.88%), S&P 500 (+1.32%), and DJIA (+0.68%) all gained on the day. The VIX fell 20.48% as sentiment stabilized.

President Joe Biden said, “there’s no cause for panic.” He went on to ensure Americans no shutdowns or lockdowns are on the near horizon surrounding the omicron variant. The 10-two Treasury yield spread increased by 5.60%, marking the largest daily jump since June.

Right when the market appeared to settle, Tuesday, November 30, saw the reemergence of uncertainty and fear. Similar to Friday, investors sold equity positions to seek the shelter of fixed income - Russell 2000 (-1.92%) and S&P 500 (-1.90%) were laggards on the day.

The 10-two Treasury yield spread fell 10.21% as the 10-year yield decreased 5.76%. In his remarks to the Senate Banking Committee, the newly re-elected Federal Reserve Chair Jerome Powell stated:

“We tend to use [the word “transitory”] to mean that it won’t leave a permanent mark in the form of higher inflation. I think it’s probably a good time to retire that word and try to explain more clearly what we mean.”

Also rattling markets was Powell hinting the Fed may end its asset-purchasing program earlier than expected to combat rising prices, leading to a rate increase to happen earlier than expected.

Our fund-flows week wrapped up Wednesday, December 1, with White House Chief Medical Advisor Dr. Anthony Fauci announcing the first case of the COVID-19 omicron variant had been reported in the U.S.

For the second straight day, investors pulled capital from equity markets and poured into longer-dated bonds. The Russell 2000 (-2.34%), NASDAQ (-1.83%), DJIA (-1.34%), and S&P 500 (-1.18%) all retreated over the session. The 10-two Treasury yield spread fell another 4.81%. The VIX jumped (+17.07%) for the second straight day.

Exchange-Traded Equity Funds

Exchange-traded equity funds recorded $15.9 billion in weekly net inflows. This is the macro group’s ninth straight week of inflows. Equity ETFs have recorded back-to-back weeks of negative performance, and their worst weekly performance (-4.42%) in 61 weeks.

Growth/value large-cap ETFs (+$15.5 billion), sector-technology ETFs (+$2.6 billion), and equity income ETFs (+$647 million) were the three largest attractors of new money under the macro group.

Growth/value large-cap ETFs recorded their eighth week of net inflows in the last nine despite realizing their lowest weekly performance (-4.21%) since October 2020. Sector-technology ETFs reported their largest weekly inflows since February. Equity income ETFs realized their seventeenth straight week of inflows.

Sector-financial/banking ETFs (-$1.5 billion) and growth/value-small cap ETFs (-$565 million) suffered the largest weekly outflows for equity ETFs. Sector-financial/banking ETFs have realized four consecutive weeks of outflows. Growth/value-small cap ETFs logged their first weekly outflow in six weeks. Both subgroups depreciated significantly over the week, (-6.43 and -7.54%, respectively).

Over the past fund flows week, the top three equity ETF flow attractors were: SPDR S&P 500 ETF (SPY, +$7.1 billion), iShares: MSCI USA Quality Factor (QUAL, +$3.4 billion), and Invesco QQQ Trust 1 (QQQ, +$3.2 billion). This was SPY’s third-largest weekly inflow of the year and the largest since August.

Meanwhile, the bottom two equity ETFs in terms of weekly outflows were: Select Sector: Financial Sector SPDR (XLF, -$1.3 billion) and iShares: MSCI USA Momentum Factor ETF (MTUM, -$1.0 billion).

Exchange-Traded Fixed Income Funds

Exchange-traded fixed income funds recorded $1.6 billion in weekly net outflows - the macro group’s first week of outflows in eight. Fixed income ETFs reported a weekly return of positive 0.51% on average - the macro group’s first week of positive performance in the last three.

Government Treasury ETFs (+$582 million), balanced funds ETFs (+$56 million), and government-mortgage ETFs (+$28 million) were the only subgroups to attract new money under fixed income ETFs.

While posting a positive 0.70% over the week, government-Treasury ETFs observed their sixth straight week of inflows. Balanced funds ETFs have realized 10 straight weeks of inflows, whereas government-mortgage ETFs logged their first weekly inflows in a month.

Corporate-investment grade ETFs (-$1.4 billion) and corporate high yield ETFs (-$335 million) witnessed the largest outflows under the fixed income ETF macro group. Despite posting a positive 0.59% return on average, corporate investment grade ETFs recorded their first weekly outflow in four weeks. Corporate high yield ETFs reported their second consecutive weekly outflows as they realize their third straight week of negative performance.

iShares: 20+ Treasury Bond ETF (TLT, +$1.1 billion), and iShares: 7-10 Treasury Bond ETF (IEF, +$301 million) attracted the largest amounts of weekly net new money for taxable fixed income ETFs.

On the other hand, Invesco Senior Loan (BKLN, -$492 million) and iShares: iBoxx $Investment Grade Corporates (LQD, -$467 million) suffered the largest net weekly outflows.

Conventional Equity Funds

Conventional equity funds (ex-ETFs) were net redeemers for the eighth week in a row (-$2.8 billion). Conventional equity funds posted a weekly return of negative 4.43% on average, marking their second straight week of sub-zero performance.

Domestic conventional equity funds saw outflows this week (-$3.5 billion), marking the twenty-third straight week of outflows. Nondomestic conventional equity funds reported a weekly inflow of $669 million - their fourth consecutive week of inflows.

Conventional international equity funds (+$733 million) and sector-other funds (+$242 million) led all subgroups in inflows under conventional equity funds. Both subgroups, however, recorded negative weekly performance of 3.13% and 5.47%, respectively. International equity funds (seven) and sector-other funds (four) are both riding a streak of weekly inflows.

Growth/value small-cap funds (-$1.4 billion) and growth/value large-cap funds (-$1.3 billion) saw the most money exit conventional equity funds. Growth/value small-cap funds logged the largest weekly outflows this year as they posted their twenty-fourth straight week of net outflows.

The subgroup also suffered negative weekly performance (-7.02%). Growth/value large-cap funds have seen outflows in 23 straight weeks. The subgroup recorded a negative 4.50% on average over the fund flows week.

Conventional Fixed Income Funds

Conventional fixed income funds realized a weekly outflow of $5.3 billion - their largest outflows since April 2020. The subgroup reported a weekly performance of negative 0.32%, on average.

Conventional government Treasury funds (+$282 million) and balanced funds (+$197 million) led the macro group in inflows. Government Treasury funds have now recorded 17 weeks of inflows in a row. Balanced funds logged their seventh straight weekly inflow.

Conventional corporate investment grade funds (-$2.5 billion) and corporate high yield funds (-$2.3 billion) suffered the largest outflows under conventional fixed income funds. Corporate investment grade funds witnessed their largest weekly outflows since April 2020 despite reporting a positive weekly performance (+0.66%). Corporate high yield funds witnessed their fifth consecutive week of outflows as they recorded their largest outflows since May.

Municipal bond funds (ex-ETFs) returned positive 0.41% on average over the fund flows week. The subgroup experienced $1 million in outflows, marking their first week of outflows in six. Conventional municipal bond funds have only recorded five total weeks of net outflows this year.

Original Post

Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.