Funds Suffer Overall Net Outflows

Lipper’s fund asset groups (including both mutual funds and exchange-traded funds) recorded net outflows of $65.8 billion for the fund-flows trading week ended Wednesday, December 18. Equity funds (-$32.2 billion), money market funds (-$30.9 billion), and taxable bond funds (-$4.3 billion) all saw money leave their coffers, while municipal bond funds took in $1.6 billion in net new money.

A significant portion of this week’s net outflows belonged to the equity mutual funds (-$29.2 billion) asset group. We suspect that some of these net outflows are attributable to this group’s downward trend (44 consecutive net outflows), but we believe that a major part of the net negative flows are due to funds going ex-dividend on December 18, causing a temporary one day decrease in total net assets. When a fund goes ex-dividend, the fund’s net assets will fall by the amount of the distribution that day. The assets will then revert back the next day as they are reinvested into the funds. Therefore, we would expect to see net inflows back into these equity mutual funds on December 19 representing the reinvestment of the distributions.

Market Overview

For the second consecutive fund-flows trading week, all of the major equity indices posted gains. The Nasdaq Composite Index, the S&P 500 Index, and the Dow Jones Industrial Average rose 2.01%, 1.58%, and 1.18%, respectively, this week. Each index is positioned to record very impressive annual increases as the year winds down, with the Nasdaq, S&P 500, and the Dow up 33.04%, 27.30%, and 21.06%, respectively, for the year to date as of the close of business December 18. The equity indices captured the lion’s share of their gains this week during trading on Thursday and Monday, as once again the markets were driven by news about the U.S./China trade dispute. The week started with the U.S. announcing that it had reached a “deal in principle” with China that would put to rest the 17 months of trade tensions between the two nations. The White House jawboned the markets again later in the week as Larry Kudlow, an economic advisor to President Donald Trump, stated that a phase one deal had been reached and was expected to be signed during the first week of the new year.

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