U.S. Weekly FundFlows Insight Report: Investors Turn To Short Treasury Funds & ETFs

Investors were overall net sellers of fund assets (including those of conventional funds and ETFs) for the second week in a row, redeeming a net $23.5 billion for the Refinitiv Lipper fund-flows week ended May 11. Fund investors were net redeemers of equity funds (-$8.6 billion), taxable bond funds (-$6.7 billion), money market funds (-$5.8 billion), and tax-exempt fixed-income funds (-$2.4 billion) for the week.

Market Wrap-Up

Markets took a beating during the fund-flows week as investors weighed the implications of inflation flagging at a slower rate than anticipated, weakening growth, and prospects of aggressive interest hikes by the Federal Reserve.

The Dow Jones Industrial Average suffered its largest one-week loss since the fund-flows week ended March 18, 2020, the Nasdaq Composite posted its worst one-week decline since October 8, 2008, and the S&P 500 slid below the 4,000 mark for the first time in 13 months. Nondomestic indices, however, did a better job of mitigating losses than domestic indices.

On the domestic side of the equation, the Nasdaq Composite (-12.35% for the week, and down 27.36% YTD) posted the weakest returns of the other broadly followed U.S. indices as stock market sentiment continued to tank. It was bettered by the Russell 2000 (-11.89% and -23.48%, respectively). The Dow Jones Industrial Average (-6.54% and -12.40%, respectively) mitigated losses better than the other U.S. indices for the week. Overseas, the FTSE 100 (-3.21% and –9.35%, respectively) posted the largest declines of the other often-followed broad-based international indices, while the Xetra DAX (-1.04% and -19.26%, respectively) did the best job mitigating losses.

For the flows week, the Bloomberg U.S. Aggregate Bond Index (-0.08%) did a better job mitigating losses than the Bloomberg Municipal Bond Index (-0.83%) and the S&P/LSTA Leverage Loan Index (-1.34%).

On Thursday, May 5, the DJIA and Nasdaq posted their sharpest one-day declines since 2020 as bond yields were on the rise and technology issues took it on the chin, with tech behemoths Amazon (-7.6%) and Facebook (-6.8%) seeing some of the largest declines. Markets slumped a day after the Federal Reserve announced its widely expected 50-basis-point (bps) interest rate hike—with some investors fearing the Fed is falling behind on inflationary pressures. The 10-year Treasury yield rose 12 bps on the day, closing at 3.05% (its highest closing value since November 28, 2018). In other news, first-time claims for unemployment benefits from the week prior rose 19,000 to 200,000. For Q1, U.S. productivity declined by 7.5%—its largest decline since 1947 and unit labor costs rose 11.6%, both on an annual basis.

Despite a better-than-expected April nonfarm payrolls report, all three major U.S. indices closed lower on Friday, May 6, with the S&P 500 posting its longest weekly losing streak since June 2011, declining for a fifth consecutive week amid rising stagflation fears. The U.S. Bureau of Labor Statistics reported the U.S. economy added 428,000 new jobs in April, beating analyst expectations of 400,000. However, average hourly earnings cooled, rising 0.3% in April, lower than analyst expectations of a 0.4% rise.  Nonetheless, the 10-year Treasury yield rose seven bps to close at 3.12%. Front-month crude oil futures prices rose 1.4% on the day—closing at $109.77/barrel (bbl) and posting a weekly gain of 4.9%.

All three major U.S. indices ended sharply lower on Monday, May 9, with the S&P dropping below the 4,000 mark for the first time since April 1, 2021, as investors appeared to agonize over nascent signs of stagflation. Investors pushed front-month crude oil futures down 6.1% on the day to $103.09/bbl after learning that Chinese April trade data showed exports rising only 3.7% year over year, down from the growth of 15.7% the month before. The 10-year Treasury yield declined seven bps to close at 3.05%.

Stocks ended mixed on Tuesday, May 10, with the Dow witnessing its fourth straight day of declines but the S&P 500 and Nasdaq snapped a three-day losing streak. Investors were gauging the Fed’s ability to construct a soft landing as it attempts to thwart rising inflation by lifting interest rates and paring its balance sheet as they awaited fresh inflation data due out on Wednesday. The 10-year Treasury yield fell six bps to 2.99% on hopes that the April consumer price index eased from the month earlier. Front-month crude oil futures finished down 3.3% to $99.76/bbl.

The Dow booked its largest one-week losing streak since the fund-flows week ended March 25, 2020, on Wednesday, May 11, after the April consumer price index showed U.S. inflation slowed less than expected. And while April consumer prices rose by an improved 8.3% annual pace, slower than the more-than 40-year high of 8.5% in March, it came in higher than analyst expectations of 8.1%. In other news, front-month crude oil futures rose 5.6% to $105.71/bbl after reports of declining COVID cases in China drove hopes of easing restrictions and return to normal trade. The 10-year Treasury yield declined eight bps to 2.91%.

Exchange-Traded Equity Funds

Equity ETFs witnessed their second consecutive week of net inflows, taking in $647 million for the most recent fund-flows week. Authorized participants (APs) were net purchasers of domestic equity ETFs (although only to the tune of +$299 million), injecting money also for the second week in a row, while nondomestic equity ETFs witnessed net inflows also for the second week running, attracting some $348 million this past week. Equity income ETFs (+$2.5 billion) attracted the largest draw of net new money, followed by large-cap ETFs (+$1.9 billion) and small-cap ETFs (+$781 million). Meanwhile, the commodities heavy sector-other ETFs (-$3.2 billion) suffered the largest net redemptions of the equity ETF macro-groups for the flows week, followed by sector-financial/banking ETFs (-$1.2 billion).

SPDR Portfolio S&P 500 High Dividend ETF (SPYD, +$1.3 billion) and iShares Russell 2000 ETF (IWM, +$930 million) attracted the largest amounts of net new money of all individual equity ETFs. At the other end of the spectrum, SPDR Gold Shares (GLD, -$1.3 billion) experienced the largest individual net redemptions and iShares MSCI USA Value Factor ETF (VLUE -$735 million) suffered the second largest net redemptions of the week.

Exchange-Traded Fixed Income Funds

For the fourth week in a row, taxable fixed income ETFs witnessed net inflows, taking in $3.2 billion this last week. APs were net purchasers of government-Treasury ETFs (+$4.0 billion), corporate high-yield ETFs (+$850 million), and international & global debt ETFs (+$246 million) while being net redeemers of corporate investment-grade debt ETFs (-$1.4 billion) and flexible ETFs (-$451 million). iShares iBoxx $ High Yield Corporate Bond ETF (HYG+$1.2 billion) and iShares 7-10 Year Treasury Bond ETF (IEF, +$1.1 billion) attracted the largest amounts of net new money of all individual taxable fixed income ETFs. Meanwhile, iShares Core US Aggregate Bond ETF (AGG, -$904 million) and iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD, -$752 million) handed back the largest individual net redemptions for the week.

For the second straight week, municipal bond ETFs witnessed net inflows, with investors injecting $1.6 billion this week. iShares National Muni Bond ETF (MUB, +$1.2 billion) witnessed the largest draw of net new money of the municipal bond ETFs, while First Trust Managed Municipal ETF (FMB, -$66 million) experienced the largest net redemptions in the subgroup for the week.

Conventional Equity Funds

Conventional fund (ex-ETF) investors were net sellers of equity funds for the fourteenth week in a row—redeeming $9.2 billion (their largest weekly net outflows since December 15, 2021)—with the macro-group recording a market loss of 8.80% for the fund-flows week. Domestic equity funds, suffering net redemptions of slightly less than $6.4 billion, also witnessed their fourteenth consecutive week of net outflows while chalking up a 9.31% market loss on average for the fund-flows week. Nondomestic equity funds—posting a 7.57% weekly decline on average—observed their fifth straight week of net outflows, handing back $2.8 billion this week.

On the domestic equity side, fund investors were net purchasers of the equity income funds (+$192 million) and gold and natural resources funds (+$58 million), while being net redeemers of large-cap funds (-$4.8 billion) and small-cap funds (-$1.0 billion). Investors on the nondomestic equity side were net redeemers of international equity funds (-$2.4 billion) and global equity funds (-$466 million) for the week.

Conventional Fixed Income Funds

For the sixteenth week in a row, taxable bond funds (ex-ETFs) witnessed net outflows—handing back $9.9 billion this past week—while posting a 1.77% loss on average for the fund-flows week. Investors were net purchasers of Short U.S. Treasury Funds (+$73 million) and Specialty Fixed Income Funds (+$37 million) while being net redeemers of corporate investment-grade debt funds (-$6.8 billion), government-mortgage funds (-$798 million), and corporate high-yield funds (-$681 million).

The municipal bond funds group posted a 1.00% loss on average during the week and witnessed its eighteenth consecutive weekly net outflows, handing back $4.1 billion this week and marking its longest stretch of weekly net outflows since the week ended January 8, 2014. General & Insured Municipal Debt Funds (-$1.6 billion) and High Yield Municipal Debt Funds (-$853 million) experienced the largest net outflows of the group.

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