Lipper’s fund asset groups (including both mutual funds and ETFs) suffered net negative flows of $31.3 billion for the fund-flows trading week ended Wednesday, July 1. The net outflows were attributable to money market funds (-$28.0 billion) and equity funds (-$10.0 billion). Money market funds have had net money leave for seven consecutive weeks while equity funds have suffered net outflows in nine of the last 10 weeks. Conversely, bond funds continued to attract net new money. Taxable bond funds (+$5.6 billion) and municipal bond funds (+$1.1 billion) had net-positive flows for the twelfth and eighth consecutive weeks, respectively.

Market Overview

The major equity indices all recorded positive results for the fund-flows trading week as the Nasdaq Composite Index, S&P 500 Index, and the Dow Jones Industrial Average appreciated 2.5%, 2.2%, and 1.1%, respectively. This week’s performance numbers capped a banner second quarter for the indices as they bounced back from the COVID-19 induced slump from Q1. For Q2, the Nasdaq grew 30.6% (its best quarter since Q4 1999 [+48.2%]), the Dow was up 17.8% (its highest return since the Q1 1987 [+21.6%]), and the S&P 500 appreciated 20.0% (its largest return since Q4 1998 [+20.9%]).

The market’s strength this week came from continued support from the central bank and upbeat economic data which gave investors hope that the economy was on the mend despite the recent surge in positive coronavirus tests. In Congressional testimony, Federal Reserve Chairman Jerome Powell stated that the Fed’s main goal was to use all of the tools at its disposal to help the millions of Americans who lost their jobs due to the COVID-19 pandemic get back to work. The minutes from the Fed’s June meeting also provided further insights along these lines. The minutes showed that the Fed is committed to keeping interest rates at their current level (the current range for the federal funds rate is 0.00% to 0.25%) until at least 2022. In addition, the minutes indicated that the Fed is continuing to seek innovative ways to provide more stimulus to the economy now that the interest rate cuts option has been exhausted. The Fed did not expect to have any new concepts ready to be unveiled at its July meeting, but its following meeting in September is a possibility.

The positive economic news included the Institute of Supply Management’s manufacturing purchasing managers index climbing to 52.6% from 43.1%. Any result greater than 50.0% for this index signals an expanding economy. In other good news, consumer spending and previously owned homes contracts had their largest one-month increases ever. Consumer spending rose 8.2% in May and the National Association of Realtors announced that its Pending Homes Sales Index surged 44.3% last month. These numbers indicate that while we are still in uncertain times, Americans are starting to put money back into play.

ETFs

ETFs (+$3.8 billion) took in net new money for the second straight week. The lion’s share of the net inflows (+$3.5 billion) belonged to taxable bond ETFs, while muni bonds ETFs also experienced net positive flows (+$386 million), and equity ETFs (-$118 million) had net money leave. The largest individual net inflows for taxable bond ETFs belonged to iShares 7-10 Year Treasury Bond ETF (IEF, +$1.8 billion), SPDR Portfolio Intermediate-Term Treasury ETF (SPTI, +$1.8 billion), and Schwab U.S. TIPS ETF (SCHP, +$1.2 billion). For tax-exempt ETFs, iShares National Municipal Bond ETF (MUB, +$234 million) had the largest increase while for equity ETFs SPDR S&P 500 ETF (SPY) had the largest net outflows (-$1.7 billion) and Schwab U.S. Large-Cap ETF (SCHX) took in the most net new money (+$585 million).

Equity Mutual Funds

Equity mutual funds suffered net outflows (-$9.9 billion) for the tenth straight week. Net negative flows were nearly evenly split between non-domestic equity funds (-$5.0 billion) and domestic equity funds (-$4.9 billion). The largest net outflows among the peer groups belonged to Large-Cap Growth Funds (-$1.5 billion) and Global Large-Cap Core Funds (-$836 million) for the domestic and non-domestic fund universes, respectively.

Fixed Income Mutual Funds

Taxable bond funds (+$2.1 billion) and tax-exempt bond funds (+$679 million) extended their net positive flow streaks to twelve and 8, respectively. The largest net inflows for taxable bond funds were attributable to the Core Bond Funds ($1.7 billion) and Ultra-Short Obligation Funds (+$1.4 billion) peer groups. For the muni bond fund universe, Short Muni Debt Funds (+$466 million) led the charge.

Money Market Mutual Funds

The net outflows for this group (-$28.0 billion) this week represented its seventh straight week of seeing net money leave. The majority of the money market funds peer groups contributed to the overall net outflows led by Institutional U.S. Government Money Market Funds (-$18.3 billion) and Institutional Money Market Funds (-$3.9 billion).