Investors Add $3.0 Bn To Equity And Fixed Income Funds, Withdraw $5.7 Bn From ETFs

During Refinitiv Lipper’s fund-flows week ended January 19, 2022, investors were overall net redeemers of total fund assets (including both conventional funds and ETFs) for the second straight week, withdrawing a net $61.2 billion.

Money market funds (-$58.2 billion), equity funds (-$2.4 billion), taxable bond funds (-$371 million), and tax-exempt bond funds (-$239 million) all suffered outflows over the week.

Index Performance

At the close of Refinitiv Lipper’s fund-flows week, U.S. broad-based indices traded down with the NASDAQ (-5.58%), Russell 2000 (-5.21%), S&P 500 (-4.10%), and DJIA (-3.48%) each logging negative weekly returns.

Overseas broad market indices did not fare any better, the Nikkei 225 (-4.09%), DAX 30 (-1.90%), and Shanghai Composite (-0.90%) all ended the week in the red. The FTSE 100 (+0.08%) returned plus-side performance.

Rates/Yields

The Treasury yield curve continues to flatten – the two- and three-year Treasury yields are up 13.01% and 8.48%, respectively, on the week. The 10-two Treasury yield spread is flirting with one-year lows as it fell another 1.96%.

As of January 13, the U.S. 30-year fixed-rate mortgage average ticked up to 3.45%, a 7.14% increase from the prior week. Both the United States Dollar Index (DXY, +0.63%) and VIX (+23.85%) increased over the week.

Market Recap

Our fund-flows week kicked off Thursday, January 13, with U.S. equity markets stumbling – the tech-heavy NASDAQ was the day’s largest faller (-2.51%). Both the two- (-0.88%) and 10-year (-0.93%) Treasury yields fell on the day. The Department of Labor showed an unexpected increase in initial unemployment claims (230,000, up from last week’s 207,000). Continuing claims were a reported 1.56 million versus 1.73 million expected. The Bureau of Labor Statistics published the December Producer Price Index (PPI) which showed a 9.7% jump in year-over-year prices paid by producers – marking the largest increase since 2010. Core-PPI (excluding food and energy) was reported at 8.3%.

On Friday, January 14, broad-based U.S. equity markets traded mixed with the NASDAQ (+0.59%), Russell (+0.14%), and S&P 500 (+0.08%) trading in positive territory while the DJIA (-0.56%) fell. Yields across the Treasury yield curve spiked – the two- (+7.56%) and 10-year (+3.69%) increased on the day. The University of Michigan’s preliminary January Index of Consumer Sentiment decreased over the month (68.8) – down 2.5% from September. The preliminary January figure is the second-lowest level in more than a decade and down 12.9% from last year.

On Monday, January 17, the U.S. markets were closed in celebration of Martin Luther King Jr. Day.

Tuesday, January 18, saw the 10-year Treasury yield jump nearly 10 basis points (bps) to 1.87% – the largest level since December 2019. The spike and recent earnings miss from financial companies led to equity markets falling on the day – Russell 3000 (-3.06%) suffered its largest daily blow since the end of November. Goldman Sachs CEO David Solomon said there is “real wage inflation everywhere in this economy,” indicating inflation may be stickier and more prolonged than expected.

Our fund-flows week wrapped up Wednesday, January 19, as U.S. broad-based equity markets fell for the second straight session – Russell 2000 (-1.60%), NASDAQ (-1.15%), S&P 500 (-0.97%), and DJIA (-0.96%). Treasury yields retreated slightly as the two- and 10-year yields fell 1.44% and 2.19%, respectively. Commodity prices continue to increase with the U.S. West Texas Intermediate (WTI) crude oil futures jumping above $86 per barrel – its highest mark since 2014.

Exchange-Traded Equity Funds

Exchange-traded equity funds recorded $4.0 billion in weekly net outflows, marking their first time reporting outflows in four weeks. Equity ETFs posted a negative 3.74%, on average, over the week.

Growth/value large-cap ETFs (-$9.1 billion), sector-technology ETFs (-$695 million), and growth/value small-cap ETFs (-$678 million) were the three largest equity ETFs subgroups to post outflows this week. After realizing their worst weekly performance (-4.53%) since September 9, 2020, growth/value large-cap ETFs observed their largest weekly outflows since February 3, 2021.

International equity ETFs (+$3.8 billion), equity income funds ETFs (+$1.3 billion), and sector-financial/banking ETFs (+$958 million) were the top attractors of new money over the previous fund-flows week. Despite returning negative 2.31%, international equity ETFs posted their fifth straight week of inflows.

Over the past fund-flows week, the top three equity ETF flow attractors were Schwab: US Dividend Equity ETF ((SCHD), +$463 million), iShares: Core MSCI EAFE ETF ((IEFA), +$433 million), and Krane Shares: CSI China Internet ETF ((KWEB), +$359 million).

Meanwhile, the bottom three equity ETFs in terms of weekly outflows were SPDR S&P 500 ETF ((SPY), -$6.7 billion), Invesco QQQ Trust 1 ((QQQ),-$1.9 billion), and iShares: Russell 2000 ETF ((IWM), -$1.1 billion).

Exchange-Traded Fixed Income Funds

Exchange-traded fixed income funds suffered $1.8 billion in weekly net outflows – the macro-group’s second straight week of outflows. Fixed-income ETFs reported a weekly return of negative 0.56%, on average – the macro-group’s fourth consecutive week of negative performance.

Corporate-high yield ETFs (-$2.1 billion) and corporate-investment grade ETFs (-$370 million) witnessed the largest outflows under the fixed income ETF macro-group. Corporate-high yield ETFs have posted their second straight week of outflows totaling more than $2 billion and are on pace for their worst monthly net flow since September 2020. Corporate-investment grade ETFs recorded their first weekly outflow in four weeks.

Flexible funds ETFs (+$482 million) and government-Treasury ETFs (+$430 million) were the top attractors of capital under fixed income ETFs. Flexible funds returned a positive 0.19 as they logged their third net positive flow over the last four weeks.

iShares: 1-3 Treasury Bond ETF ((SHY), +$596 million), and SPDR Blackstone Senior Loan ETF ((SRLN), +$513 million) attracted the largest amounts of weekly net new money for taxable fixed income ETFs.

On the other hand, iShares: iBoxx $HY Corporate ETF ((HYG), -$2.4 billion) and iShares: iBoxx $IG Corporate ETF ((LQD), -$1.5 billion) suffered the largest net weekly outflows.

Conventional Equity Funds

Conventional equity funds (ex-ETFs) were attractors of new funds for the third week in five (+$1.6 billion). Conventional equity funds posted a weekly return of negative 4.04% on average, their second week of sub-zero performance in three.

International equity (+$1.6 billion), growth/value large-cap (+$362 million), and global equity (+$302 million) were the top subgroups in weekly inflows under conventional equity funds. Despite a negative 3.01% return on average, conventional international equity funds logged their thirteenth weekly inflow over the past 14 weeks. International equity funds have observed their fourth straight weekly inflows of more than $1 billion.

Growth/value small-cap (-$339 million), sector-real estate (-$284 million), and sector-technology (-$240 million) were the largest subgroup outflows under conventional equity funds. Growth/value small-cap conventional funds have suffered outflows in three straight weeks and 41 of the last 44 weeks.

Conventional Fixed Income Funds

Conventional fixed income funds realized a weekly inflow of $1.4 billion – marking their fourth straight week of weekly net inflows. The subgroup reported a weekly performance of negative 0.98% on average.

Conventional corporate-investment grade (+$1.0 billion) and flexible funds (+$507 million) led the macro-group in inflows. Corporate-investment grade funds witnessed their fourth consecutive weekly inflow despite four straight weeks of negative performance.

Balanced funds (-$435 million) and international & global debt funds suffered the largest outflows under conventional fixed-income funds. Balanced funds recorded a negative 2.09% in weekly performance as they logged their second weekly outflow in three weeks. International & global debt funds have now posted six weekly outflows over the past eight.

Municipal bond funds (ex-ETFs) returned negative 0.34% over the fund-flows week. The subgroup experienced $295 million in outflows, marking their second week in a row of logging outflows. Conventional municipal bond funds only recorded five total weeks of net outflows in 2021.

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