Non-Domestic Equity Funds Realize $1.9 Bln In Outflows, First Weekly Outflow In 9 Weeks

During Refinitiv Lipper’s fund-flows week ended February 16, 2022, investors were overall net redeemers of fund assets (including both conventional funds and ETFs) for the third straight week, withdrawing a net $46.4 billion.

Money market funds (-$41.9 billion), taxable bond funds (-$8.1 billion), and tax-exempt bond funds (-$1.3 billion) suffered significant outflows. Equity funds (+4.8 billion) were the only macro-group able to attract new capital over the week.

Index Performance

At the close of Refinitiv Lipper’s fund-flows week, U.S. broad-based equity indices recorded negative weekly performance. The Nasdaq (-2.53%), S&P 500 (-2.45%), DJIA (-2.33%), and Russell 2000 (-0.20%) logged their first week of significant negative performance over the last three.

The Bloomberg U.S. Aggregate Bond Total Return Index struggled, reporting a negative 0.86% – marking the index’s seventh week in eight ending in the red. The Bloomberg Municipal Bond Total Return Index also declined dramatically (-1.07%) – the seventh consecutive week realizing negative performance.

Overseas broad market indices traded down as well – the DAX 30 (-1.27%), Nikkei 225 (-0.40%), and FTSE 100 (-0.28%) each depreciated over the week.

Rates/Yields

The Treasury yield curve continued to flatten over the week – the two- and three-year Treasury yields rose 13.43% and 9.69%, respectively. This was the second week in a row where the two-year Treasury yield increased by double-digit percentage points. The 10-two Treasury yield spread fell another 11.19%, its second week in three falling by more than 10%.

As of February 10, the U.S. 30-year fixed-rate mortgage average rose to 3.69% – a 3.94% increase from the prior week as it records its largest level in more than one year. Both the United States Dollar Index (DXY, +0.22%) and VIX (+17.91%) increased over the week.

Market Recap

Our fund-flows week kicked off Thursday, February 10, with the Bureau of Labor Statistics report showing the January Consumer Price Index (CPI) increased more than expected for both month-over-month and trailing 12-month periods. The CPI jumped 0.6% from December and an astounding 7.5% from last January – marking the largest annual spike in 40 years. Core-CPI (excluding food and energy prices) rose by 6.0% over the last year – the largest increase since 1982. A huge component to the CPI increase was the energy (+27%) and fuel oil (+9.5%) year-over-year jumps. Markets reacted sourly to the news as the Nasdaq (-2.10%), S&P 500 (-1.81%), and DJIA (-1.47%) all fell on the day while the VIX (+19.79%) and two-year Treasury yield (+15.73%) jumped.

Friday, February 11, was another rough day for the markets. The Nasdaq (-2.78%) fell by more than 2% for the second straight session. The S&P 500 (-1.90%), DJIA (-1.43%), and Russell 2000 (-1.02%) also suffered on the day. The big news was the Federal Reserve’s announcement of an emergency meeting on Monday to discuss interest rate levels following Thursday’s CPI report. Geopolitical instability between Russia and Ukraine has been picking up in recent days and now has the White House saying Russia could invade “at any time.”

On Monday, February 14, oil prices increased to more than $95 per barrel for the first time since 2014. The Russia-Ukraine turmoil will only add to the upward pressure on both energy prices and inflationary pressures faced by the Fed. St. Louis Federal Reserve President James Bullard continues to call for a more aggressive plan on the Fed’s fight against inflation. The 10-year Treasury yield increased 2.31% as it closed over 2.0% on the day. Both Goldman Sachs and Bank of America have now projected seven interest rate increases this year. U.S. equity markets fell for the third straight day, led by the DJIA (-0.49%).

On Tuesday, February 15, the Producer Price Index (PPI) showed a 1% increase in January and a 9.7% increase from last year. Both figures were larger than expected. Despite another bad inflationary signal, U.S. equity markets ended their three-day losing streak. The Russell 2000 (+2.75%) logged its best day of the year. There was good news overseas, as the threat of a Russian invasion of Ukraine eased. Russian President Vladimir Putin said that some Russian troops are being withdrawn from the Ukrainian border back toward their bases.

Our fund-flows week wrapped up Wednesday, February 16, with U.S. equity markets trading mixed. In the latest Fed meeting minutes, officials essentially confirmed that we will see the first interest rate increase next month, however, there was no indication as to how large the hike will be. The Department of Commerce published its monthly retail sales report that showed a 3.8% increase in US retail sales, significantly larger than expectations (+2.1%). According to the Mortgage Bankers Association (MBA), the average 30-year fixed-rate conforming mortgage rate increased to 4.05% – marking the first time it’s been above 4% since October 2019.

Exchange-Traded Equity Funds

Exchange-traded equity funds recorded $5.3 billion in weekly net inflows, marking their third time reporting inflows in four weeks. The macro-group posted their first negative performing week in three (-1.67%).

Growth/value large-cap ETFs (+$2.2 billion), international equity ETFs (+$1.7 billion), and sector-technology ETFs (+$1.4 billion) were the three largest equity ETF subgroups to post inflows this week. After suffering a three-week stretch of outflows greater than $8 billion, growth/value large-cap ETFs have now recorded back-to-back weekly inflows. The subgroup logged a negative 2.58% on average over the week.

Global equity ETFs (-$3.6 billion), sector-utilities ETFs (-$692 million), and growth/value-aggressive ETFs (-$68 million) were the top flow detractors under the macro-group. Geopolitical tensions reaching what we hope to be a peak over the weekend drove global equity ETFs to realize their largest weekly outflow to date. This outflow snapped a nine-week inflow stretch.

Over the past fund-flows week, the top three equity ETF flow attractors were iShares: Core S&P 500 (IVV, +$5.6 billion), VanEck: Semiconductor ETF (SMH, +$1.3 billion), and iShares: Russell 2000 ETF (IWM, +$721 million).

Meanwhile, the bottom three equity ETFs in terms of weekly outflows were SPDR S&P 500 ETF (SPY, -$3.9 billion), iShares: MSCI Kokusai (TOK, -$3.8 billion), and Invesco QQQ Trust 1 (QQQ, -$1.8 billion).

Exchange-Traded Fixed Income Funds

Exchange-traded fixed income funds observed $4.3 billion in weekly net outflows – the macro-group’s second week of outflows in three. Fixed income ETFs reported a weekly return of negative 0.69% on average.

Flexible funds ETFs (+$95 million) and government-mortgage ETFs (+$18 million) were the only attractors of capital under fixed income ETFs. Flexible funds ETFs reported a negative 0.50% on the week as they logged their third straight weekly inflows.

Corporate-high yield ETFs (-$2.1 billion) and corporate-investment grade ETFs (-$983 million) witnessed the largest outflows under the fixed income ETF macro-group. Corporate-high yield ETFs have reported their sixth consecutive week of outflows after suffering their seventh straight week of negative performance. The subgroup average performance of negative 1.32% was the lowest weekly performance since the start of the COVID-19 pandemic.

iShares: 7-10 Treasury Bond ETF (IEF, +$607 million), iShares: 20+ Treasury Bond ETF (TLT, +$366 million), and iShares: Floating Rate Bond ETF (FLOT, +$345 million) attracted the largest amounts of weekly net new money for taxable fixed income ETFs.

On the other hand, SPDR Bloomberg 1-3 Month T-Bill (BIL, -$1.9 billion), iShares: iBoxx $ Investment Grade Corporates (LQD, -$1.6 billion), and iShares: iBoxx $ High Yield Corporates (HYG, -$1.2 billion) suffered the largest net weekly outflows.

Conventional Equity Funds

Conventional equity funds (ex-ETFs) witnessed weekly outflows (-$457 million) for the second straight week. Conventional equity funds posted a weekly return of negative 1.79% on average, their first week returning negative performance in three.

Global equity funds (-$457 million), sector-real estate (-$246 million), and sector-technology (-$173 million) were the largest subgroup outflows under conventional equity funds. Global equity conventional funds have recorded their second consecutive week with net outflows.

International equity (+$487 million), equity income (+$272 million), and gold and natural resources (+$102 million) funds were the top subgroups in weekly inflows under conventional equity funds. Conventional international equity funds observed their ninth straight week of inflows, despite realizing a negative 1.08% in weekly performance. The subgroup’s four-week moving average has remained above the $1.1 billion mark for six straight weeks.

Conventional Fixed Income Funds

Conventional fixed income funds realized a weekly outflow of $3.8 billion – marking their fourth straight week of outflows. The subgroup reported a weekly performance of negative 0.88% on average. Their fourth week with a negative performance in the last five.

Corporate-investment grade (-$1.6 billion) and corporate-high yield (-$1.4 billion) funds led the macro-group in outflows. Conventional corporate-investment grade funds have now suffered three weeks of outflows over the previous four. The subgroup has also posted seven weeks of negative performance in the last eight.

Flexible funds (+$65 million), balanced funds (+$34 million), and government-Treasury & mortgage (+$23 million) conventional funds were the only subgroups to witness weekly inflows under this macro-group. Conventional flexible funds have recorded seven weeks of inflows in the last eight. This subgroup has amassed 14 consecutive monthly inflows.

Municipal bond funds (ex-ETFs) returned negative 1.10% over the fund-flows week – their sixth straight week of negative performance. The subgroup experienced $1.8 billion in outflows, marking their sixth week in a row of outflows. The subgroup has logged three straight weeks with a four-week moving outflow average of greater than 1.1 billion for the first time since the start of the pandemic. Conventional municipal bond funds only recorded five total weeks of net outflows in all of 2021.

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Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.