U.S. Weekly FundFlows Insight Report: Municipal Bond ETFs Witness Their Largest Weekly Net Inflows On Record

Investors were net purchasers of fund assets (including those of conventional funds and ETFs) for the third week in four, injecting a net $14.1 billion for the Refinitiv Lipper fund-flows week ended Wednesday, November 16. Fund investors were net buyers of equity funds (+$14.6 billion), taxable bond funds (+$2.1 billion), and tax-exempt fixed income funds (+$605 million), while being net sellers of money market funds (-$3.2 billion) for the week.

Market Wrap-Up

The U.S. equity and bond markets rallied early in the fund-flows week as investors cheered a lower-than-expected October consumer-price-index (CPI) report, but then turned cautious as they reevaluated the peak-inflation storyline. Nonetheless, weekly market gains were stellar for both equities and bonds.

On the domestic side of the equation, the Nasdaq Composite (+8.02%) posted the strongest plus-side return of the broad-based U.S. indices for the fund-flows week—its strongest gain since the week ended Wednesday, April 8, 2020. It was followed by the S&P 500 Index (+5.61%). The Dow Jones Industrial Average (+3.20%) was the relative straggler of the group. Overseas, the Xetra DAX Total Return Index (+8.07%) posted the strongest returns of the other often-followed broad-based international indices, while the Shanghai Composite (+4.63%) and the FTSE 100 (+5.31%) were the group relative laggards.

For the fund-flows week, the Bloomberg U.S. Aggregate Bond Index (+3.08%) outpaced the Bloomberg Municipal Bond Index (+2.71%) and the Morningstar LSTA U.S. Leveraged Loan Index (+0.66%).

On Thursday, November 10, the Dow posted its strongest one-day advance (+1,201.43 points) in more than two years after the October CPI data showed signs inflation might be peaking. The U.S. Bureau of Labor Statistics reported that October headline inflation came in at 0.4%, while core inflation weakened to 0.3%. The year-over-year rise in headline inflation slowed to 7.7% in October from 8.2% in September—leading many pundits to claim inflation has peaked and suggesting the expected December FOMC interest-rate hike will be a more modest 50 basis points (bps). The 10-year Treasury yield fell 30 bps, closing out the day at 3.82%, while the two-year Treasury yield declined 27 bps to 4.34%—its largest one-day decline since September 29, 2008.

U.S. stocks closed higher on Friday, November 11, as investor optimism continued to rise over improving inflation figures and hopes of a more dovish Fed. However, gains were capped after the University of Michigan indicated that its preliminary survey of consumer sentiment fell to 54.7 from its 59.9 October reading—well below analysts’ expectations of 59.5. In addition, consumer inflation expectations for next year rose to 5.1% from 5.0% last month. In other news, continued optimism over China loosening its zero-COVID-19 policy contributed to a rise in front-month crude oil futures and copper prices on the day, with WTI crude oil rising 2.88% to $88.96/barrel (bbl). The U.S. government bond market was closed in observance of the Veteran’s Day holiday.

U.S. stocks finished lower on Monday, November 14, as investors weighed mixed views from Fed officials and perhaps felt the market was getting a little ahead of itself. Over the weekend, Federal Reserve Governor Christopher Waller suggested that financial markets may have overreacted to the better-than-expected October CPI data last week, and that “we’ve still got a ways to go.” The 10-year Treasury yield rose six bps to close at 3.88%.

Stocks made subdued advances on Tuesday, November 15, after data showed the U.S. October producer price index rose 8% over the past 12 months as compared to September’s revised 8.4% increase. While Walmart’s (WMT) better-than-expected Q3 earnings report helped prop up the markets, concerns over a missile strike in Poland capped potential market gains. In other news, the first face-to-face meeting between President Joe Biden and President Xi Jinping helped ease geopolitical tensions between the two superpowers and propped up stocks in Hong Kong and China. The 10-year Treasury yield declined eight bps to 3.80%.

A stronger-than-expected October retail sales report and big profit miss by Target (TGT) cast a pall over the U.S. market on Wednesday, November 16, as all three U.S. broad market indices witnessed declines for the day. Investors took their collective foot off the gas pedal after learning that retail sales rose 1.3% in October, with the data hinting that despite the Fed’s efforts to slow down the economy, consumers were still spending a lot of money. Nonetheless, the 10-year Treasury yield finished the day down 13 bps at 3.67%, perhaps aided by the news that October industrial production declined by 0.1% and the National Association of Home Builders’ monthly confidence index fell five points to 33 in November.

Exchange-Traded Equity Funds

Equity ETFs witnessed their seventh straight week of net inflows, taking in a net $21.7 billion for the most recent fund-flows week—their largest weekly net inflows since the week ended February 10, 2021. Authorized participants (APs) were net purchasers of domestic equity ETFs (+$18.5 billion), injecting money for the sixth week in seven, while nondomestic equity ETFs witnessed their eighth straight week of net inflows, attracting $3.2 billion this past week. Large-cap ETFs (+$11.5 billion) observed the largest net inflows of the equity ETF macro-groups for the fund-flows week—helped by net inflows into S&P 500 Index ETFs (+$6.6 billion), followed by international equity ETFs (+$3.1 billion) and small-cap ETFs (+$2.0 billion). Meanwhile, sector-utility ETFs (-$57 million) suffered the largest net outflows, bettered by the sector-real estate ETFs (-$54 billion).

SPDR S&P 500 ETF (SPY, +$7.1 billion) and Invesco QQQ Trust 1 (QQQ, +$2.6 billion) attracted the largest amounts of net new money of all individual equity ETFs. At the other end of the spectrum, Goldman Sachs ActiveBeta US Large Cap Equity ETF (GSLC, -$695 million) experienced the largest individual net redemptions, and iShares Core S&P 500 ETF (IVV, -$476 million) suffered the second largest net redemptions of the week.

Exchange-Traded Fixed Income Funds

For the second consecutive week, taxable fixed income ETFs witnessed net inflows, taking in $7.2 billion this week. APs were net purchasers of corporate investment-grade debt ETFs (+$2.4 billion), corporate high-yield ETFs (+$2.0 billion), and government-Treasury ETFs (+$1.2 billion). None of the other taxable bond ETF macro-groups experienced net redemptions for the week.

iShares iBoxx $ High Yield Corporate Bond ETF (HYG, +$1.4 billion), iShares 20+ Year Treasury Bond ETF (TLT+$1.3 billion), and iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD, +$1.1 billion) attracted the largest amounts of net new money of all individual taxable fixed income ETFs. Meanwhile, iShares Short Treasury Bond ETF (SHV, -$1.3 billion) and iShares 3-7 Year Treasury Bond ETF (IEI, -$601 million) handed back the largest individual net redemptions for the week.

For the fourth week in a row, municipal bond ETFs experienced net inflows, taking in $1.8 billion this week—their largest weekly net inflows on record dating back to the week ended September 12, 2007, when Lipper began tracking weekly estimated net flows for municipal bond ETFs. iShares National Municipal Bond ETF (MUB, +$584 million) witnessed the largest draw of net new money of the municipal bond ETFs, while Invesco California AMT-Free Muni Bond ETF (PWZ, -$4 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 forty-first week in a row—redeeming $7.1 billion—with the macro-group chalking up a market return of 5.60% for the fund-flows week. Domestic equity funds, suffering net redemptions of slightly more than $3.9 billion, also witnessed their forty-first consecutive week of net outflows while posting a 5.35% market return on average for the fund-flows week. Nondomestic equity funds—posting a 6.21% weekly market gain on average—observed their thirty-second straight week of net outflows, handing back slightly more than $3.1 billion this week.

On the domestic equity side, fund investors were net redeemers of large-cap funds (-$1.7 billion) and mid-cap funds (-$700 million). Investors on the nondomestic equity side were net redeemers of international equity funds (-$2.4 billion) and global equity funds (-$723 million) for the week.

Conventional Fixed Income Funds

For the thirteenth consecutive week, taxable bond funds (ex-ETFs) witnessed net outflows—handing back $5.1 billion this past week—while posting a 2.68% market gain (not a typo) on average for the fund-flows week. The high-yield funds macro-group (+$889 million) attracted the largest amount of net new money of the taxable bond funds group for the week, followed by government-Treasury & mortgage funds (+$23 million). Corporate investment-grade debt funds (-$3.3 billion) suffered the largest net redemptions for the fund-flows week, bettered by flexible funds (-$1.4 billion) and balanced funds (-$691 million).

The municipal bond funds group posted a whopping 2.47% gain on average during the fund-flows week (their third largest weekly gain on record) but witnessed net outflows for the thirteenth straight week, handing back $1.2 billion this week. Short Municipal Debt Funds (-$300 million) and Short/Intermediate Municipal Debt Funds (-$269 million) suffered the largest net redemptions of the macro-group for the week.

Year to date, the municipal bond funds macro-group (ex-ETFs) handed back $132.6 billion—witnessing the largest net redemption thus far of any full year dating back to 1992 when Lipper began calculating weekly estimated net flows.

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