U.S. Weekly FundFlows Insight Report: In Contrast With Fund Investors, APs Give Cold Shoulder To Bonds, Embrace Equities

Investors were overall net sellers of fund assets (including those of conventional funds and ETFs) for the first week in three. They withdrew a net $2.7 billion for Refinitiv Lipper’s fund-flows week ended May 5, 2021, with all of the net redemptions attributable to short-term assets. Fund investors were net redeemers of money market funds (-$14.6 billion) while being net purchasers of taxable bond funds (+$6.5 billion), equity funds (+$4.8 billion), and tax-exempt fixed-income funds (+$585 million) for the week.

Market Wrap-Up

For the fund-flows week, returns for the broad-based U.S. indices were generally down as investors weighed the dichotomy of reports of strong Q1 corporate earnings and economic resurgence against worries about inflation and stretched valuations for equities. While Federal Reserve officials have doubled down on their conviction that interest rates will remain unchanged for the foreseeable future, comments late in the fund-flows week by Treasury Secretary Janet Yellen and Dallas Fed President Robert Kaplan on inflation and the need to review the Fed’s asset purchases raised general concern with some market participants. Nonetheless, the DJIA booked its twenty-second record close of 2021 during the week.

On the domestic side of the equation, the Dow Jones Industrial Average Price Only Index (+1.21%) witnessed the only plus-side returns of the other broadly followed U.S. indices for the fund-flows week, followed by the S&P 500 Price Only Index (-0.37%). The NASDAQ Composite Price Only Index (-3.34%) suffered the largest declines for the week after tech shares came under pressure, even after Apple and Facebook reported stellar Q1 earnings reports at the beginning of the week. Overseas, the FTSE 100 Price Only Index (+1.12%) posted the strongest returns of the other often-followed broad-based global indices, while the Xetra DAX Total Return Index (-1.48%) witnessed the largest declines.

On Thursday, April 29, 2021, the S&P 500 closed at record highs as upbeat earnings reports from tech stalwarts and economic data helped confirm the surge in Q1 GDP growth. The Bureau of Economic Analysis reported that U.S. real gross domestic product increased at an annual rate of 6.4% in Q1 2021. The equity market was further supported by news that the first-time jobless claims from the week prior fell to 553,000. Stocks got an additional boost from a strong beginning in Q1 corporate earnings reports after Apple and Facebook handily beat analyst expectations. U.S. stocks closed lower on Friday, April 30, despite a spate of better-than-expected Q1 earnings reports as investors learned that Dallas Fed President Kaplan said he believes it is time to discuss tapering the central bank’s asset purchases. This accompanied by news that personal income jumped 21.1% in March raised some concerns that the Fed may need to ease back on its loose monetary policy sooner than it expects.

The Dow and the S&P 500 posted gains on Monday, May 3, as investors shrugged off weaker-than-expected manufacturing data. The Institute for Supply Management manufacturing index fell to 60.7%, missing analysts’ expectations of a 65% reading. Investors were encouraged by developments in Europe after the European Commission proposed allowing travelers who have been fully vaccinated to enter the region and on news that of the S&P 500 companies that have reported their Q1 earnings results thus far, 87.1% beat their earnings estimates, according to the Refinitiv Proprietary Research Team. On Tuesday, May 4, tech stocks witnessed their worst declines since March after Treasury Secretary Janet Yellen said the interest rate could rise a bit if the economy overheats, adding to concerns after Kaplan’s comments on the need to revisit the Fed’s bond purchases. Nonetheless, the Dow eked out small gains on the day after news showed U.S. factory orders increased in March. The 10-year Treasury yield declined two basis points on the day to settle at 1.61%. However, on Wednesday, May 5, the Dow booked its twenty-second record close of 2021, while tech-related issues took it on the chin for the fourth consecutive day. Some investors appear to be preparing for the eventual removal of easy money despite Fed officials continuing to message the “go-slow” mantra.

Exchange-Traded Equity Funds

Equity ETFs witnessed their thirteenth consecutive week of net inflows—attracting $10.7 billion for the most recent fund-flows week. Authorized participants (APs) were net purchasers of domestic equity ETFs (+$9.4 billion), injecting money for the ninth week in a row. Nondomestic equity ETFs witnessed net inflows for the twentieth week running, attracting $1.3 billion this past week. SPDR S&P 500 ETF (SPY, +$3.2 billion) and iShares Core S&P 500 ETF (IVV, +$1.2 billion) attracted the largest amounts of net new money of all individual equity ETFs. At the other end of the spectrum, Invesco QQQ Trust 1 ETF (QQQ, -$1.2 billion) experienced the largest individual net redemptions, and ARK Innovation ETF (ARKK, -$714 million) suffered the second largest net redemptions of the week.

Exchange-Traded Fixed Income Funds

For the first week in six, taxable fixed income ETFs witnessed net outflows, handing back $1.6 billion this last week. APs were net purchasers of flexible ETFs (+$579 million) and international & global debt ETFs (+$95 million) while being net redeemers of government-Treasury ETFs (-$1.15 billion) and corporate high-yield ETFs (-$1.09 billion). SPDR Portfolio Intermediate Term Corporate Bond ETF (SPIB, +$451 million) and iShares Core US Aggregate Bond ETF (AGG, +$424 million) attracted the largest amounts of net new money of all individual taxable fixed income ETFs. Meanwhile, iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD, -$1.2 billion) and iShares 20+ Year Treasury Bond ETF (TLT, -$857 million) handed back the largest individual net redemptions for the week. For the tenth week in a row, municipal bond ETFs witnessed net inflows, taking in $113 million this week.

Conventional Equity Funds

Conventional fund (ex-ETF) investors were net redeemers of equity funds for the fifth consecutive week, withdrawing $5.9 billion this week, with the macro-group posting a 1.35% market decline for the fund-flows week. Domestic equity funds, suffering net redemptions of slightly more than $5.2 billion, witnessed their nineteenth weekly net outflows while experiencing a 1.29% loss on average for the fund-flows week. Nondomestic equity funds—posting a 1.49% weekly drop on average—observed their second consecutive week of net outflows, handing back $673 million this past week. On the domestic equity side, fund investors shunned large-cap funds (-$3.8 billion) and mid-cap funds (-$1.2 billion). Investors on the nondomestic equity side were net purchasers of global equity funds (+$853 million) but were net redeemers of international equity funds (-$1.5 billion).

Conventional Fixed Income Funds

For the fifth week in a row, taxable bond funds (ex-ETFs) witnessed net inflows—taking in $8.1 billion this past week—while posting a 0.30% gain for the fund-flows week. Investors were net purchasers of corporate investment-grade debt funds (+$3.9 billion), flexible funds (+$1.8 billion), and government-Treasury funds (+$1.1 billion) while being net redeemers of corporate high-yield funds (-$301 million). The municipal bond funds group posted a 0.15% gain on average during the week and witnessed its fifth straight week of net inflows, attracting $471 million this week. General & Insured Municipal Debt Funds (+$370 million) experienced the largest net inflows of the group, followed closely by High Yield Municipal Debt Funds (+$323 million).

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