U.S. Weekly FundFlows Insight Report: Conventional Fund, ETF Investors Shun Equities Over Rising Inflationary Concerns

Investors were overall net purchasers of fund assets (including those of conventional funds and ETFs) for the second week in a row. They injected a net $25.8 billion for Refinitiv Lipper’s fund-flows week ended May 19, 2021. Fund investors were net purchasers of money market funds (+$25.2 billion), taxable bond funds (+$3.4 billion), and tax-exempt fixed-income funds (+$725 million) while being net sellers of equity funds (-$3.5 billion) for the week.

Market Wrap-Up

For the fund-flows week, returns for the broad-based U.S. indices were generally on the plus side as investors weighed inflationary concerns and stretched valuations for equities against strong earnings reports from retailers during the fund-flows week. Equity markets remained volatile during the week as investors awaited the release of the April Federal Open Market Committee meeting notes. On Wednesday, May 19, these notes highlighted the emerging debate among members concerning inflationary risks and when the Fed should begin reducing its asset purchases.

Despite a roller coaster ride for stocks, on the domestic side of the equation, the Russell 2000 Price Only Index (+2.74%) witnessed the strongest plus-side returns of the other broadly followed U.S. indices for the fund-flows week, followed by the NASDAQ Composite Price Only Index (+2.06%). The Dow Jones Industrial Average Price Only Index (+0.92%) witnessed the smallest gains for the week even after tech shares came under pressure and a few big retailers reported better-than-expected Q1 earnings during the week. Overseas, the Shanghai Composite Price Only Index (+1.46%) posted the strongest returns of the other often-followed broad-based global indices, while the FTSE 100 Price Only Index (-0.44%) witnessed the only decline.

On Thursday, May 13, 2021, the Dow snapped a three-day losing streak after investors learned that first-time jobless claims declined to a pandemic low of 473,000 for the week prior. Oil prices declined some 3.5% after Colonial Pipeline announced it had resumed operations after closing them due to a ransomware attack. U.S. stocks closed higher on Friday, May 14, despite a weaker-than-expected reading of April retail sales, which came in unchanged, missing analyst expectations of a 0.8% increase. Also, an April import price index showed a 10.6% rise over the past year, fanning inflationary concerns.

The Dow, S&P 500, and NASDAQ snapped their two-day winning streaks on Monday, May 17, as inflationary fears ruled the roost and investors continued their rotation out of some of the recent high-flying tech winners. Near-month crude oil prices got another shot in the arm as optimism surrounding the economic recovery in the U.S. and Europe helped push prices to a near two-year high of $66.27/barrel for West Texas Intermediate Crude. On Tuesday, May 18, inflationary concerns and lofty equity prices trumped strong Q1 earnings reports from the likes of Home Depot, Walmart, and Macy’s, with U.S stocks closing in negative territory for the day. And, on Wednesday, May 19, stocks continued their slide after investors pored over the Federal Reserve’s April policy-setting meeting minutes, which showed increasing awareness among members that they need to begin discussions on when to pull back on their asset purchases. The European Central Bank and the Bank of China also weighed in on the potential for pronounced asset price declines aftermarket rallies pushed stocks and commodities to lofty levels as a result of governments’ unprecedented economic support to counteract the impact of the pandemic.

Exchange-Traded Equity Funds

Equity ETFs witnessed their first week of net outflows in 15—handing back $1.2 billion for the most recent fund-flows week. Authorized participants (APs) were net sellers of domestic equity ETFs (-$3.7 billion), withdrawing money for the first week in 11. Nondomestic equity ETFs witnessed net inflows for the twenty-second week running, attracting $2.5 billion this past week. Financial Select Sector SPDR ETF (XLF, +$1.3 billion) and iShares Russell 2000 ETF (IWM, +$1.0 billion) attracted the largest amounts of net new money of all individual equity ETFs. At the other end of the spectrum, SPDR S&P 500 ETF (SPY, -$6.1 billion) experienced the largest individual net redemptions, and Invesco QQQ Trust 1 ETF (QQQ, -$1.3 billion) suffered the second largest net redemptions of the week.

Exchange-Traded Fixed Income Funds

For the second week in a row, taxable fixed income ETFs witnessed net inflows, taking in $4.4 billion this last week. APs were net purchasers of government-Treasury ETFs (+$2.0 billion), corporate investment-grade debt ETFs (+$1.126 billion), and corporate high-yield ETFs (+$1.116 billion) while being net redeemers of corporate high-quality ETFs (-$61 million). SPDR Bloomberg Barclays High Yield Bond ETF (JNK, +$867 million) and iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD, +$523 million) attracted the largest amounts of net new money of all individual taxable fixed income ETFs. Meanwhile, SPDR Portfolio Intermediate Term Corporate Bond ETF (SPIB, -$597 million) and VanEck Vectors Fallen Angel High Yield Bond ETF (ANGL, -$165 million) handed back the largest individual net redemptions for the week. For the twelfth week in a row, municipal bond ETFs witnessed net inflows, taking in $70 million this week.

Conventional Equity Funds

Conventional fund (ex-ETF) investors were net redeemers of equity funds for the seventh consecutive week—withdrawing $2.3 billion this week—with the macro-group posting a 1.56% market return for the fund-flows week. Domestic equity funds, suffering net redemptions of slightly less than $3.0 billion, witnessed their twenty-first consecutive weekly net outflows while experiencing a 1.55% gain on average for the fund-flows week. Nondomestic equity funds—posting a 1.59% weekly return on average—observed their second consecutive week of net inflows, attracting $711 million this past week. On the domestic equity side, fund investors shunned large-cap funds (-$1.8 billion) and mid-cap funds (-$1.0 billion). Investors on the nondomestic equity side were net purchasers of international equity funds (+$675 million) and global equity funds (+$36 million).

Conventional Fixed Income Funds

For the first week in seven, taxable bond funds (ex-ETFs) witnessed net outflows—handing back $1.0 billion this past week—while posting a 0.28% gain for the fund-flows week. Investors were net purchasers of flexible funds (+$1.1 billion), corporate investment-grade debt funds (+$556 million), and government-Treasury funds (+$522 million) while being net redeemers of corporate high-yield funds (-$2.8 billion). The municipal bond funds group posted a 0.07% gain on average during the week and witnessed its seventh straight week of net inflows, attracting $654 million this week. High Yield Municipal Debt Funds (+$603 million) experienced the largest net inflows of the group, followed closely by General & Insured Municipal Debt Funds (+$410 million), while Short Muni Debt Funds witnessed net outflows to the tune of $712 million for the fund-flows week.

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