Investors Continue Move Back Into Asset Classes Out Of Favor Since COVID

Some fund classifications that have been under-loved and quasi out-of-favor since the pandemic began have gained in popularity as yields start to creep up and investors begin their rotation out of the popular “stay-at-home” and big-tech stocks. We are seeing investors put money back to work in financial, small-cap, value-oriented issues, and international offerings.

For the Lipper fund-flows week, investors were net purchasers of fund and ETF assets, injecting $3.6 billion into equity funds, $10.3 billion into taxable bond funds, and $2.4 billion into tax-exempt bond funds. Meanwhile, investors were net redeemers of money market funds (-$10.0 billion).

In particular, estimated weekly-net flows into emerging markets funds (+$2.5 billion), sector-financial/banking funds (+$2.0 billion this past week including ETFs), sector-technology funds (+$2.0 billion), Alternative Energy Funds (+$635 million), and Commodities Precious Metals Funds (+$650 million) show some early movement toward those groups that may benefit from an improving economy, increasing demand, rising interest rates, and possibly even contained inflationary pressures.

For the fund-flows week, the largest attractors of investor assets on the equity fund and ETF side were iShares MSCI EAFE Value ETF (EFV, +$2.4 billion), Financial Select Sector SPDR ETF (XLF, +$1.7 billion), iShares Core MSCI Emerging Markets ETF (IEMG, +$1.4 billion), and SPDR Dow Jones Industrial Average ETF (DIA, +$1.3 billion).

On the fixed income side, investors continued to favor the corporate investment-grade debt funds macro-group (+$8.2 billion), which attracted the lion’s share of net new money this week. However, in anticipation of a rising interest rate environment, Loan Participation Funds (+$1.4 billion, aka bank loan, leveraged loan, and senior loan funds) attracted their largest one-week net inflows since December 21, 2016, while Inflation Protected Bond Funds (including ETFs) took in $705 million this past week, their thirtieth week of net inflows in 31.

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