U.S. Weekly FundFlows Insight Report: Government-Treasury Funds Attract $4.1 Billion

During Refinitiv Lipper’s fund-flows week ended March 2, 2022, investors were overall net purchasers of fund assets (including both conventional funds and ETFs) for the second straight week, adding a net $33.4 billion.

Money market funds (+$39.5 billion) and equity funds (+$1.8 million) were able to attract new capital over the week. Both taxable (-$5.1 billion) and tax-exempt (-$2.8 billion) fixed income funds suffered weekly outflows.

Index Performance

At the close of Refinitiv Lipper’s fund-flows week, U.S. broad-based equity indices recorded positive weekly performance, ending two weeks of sub-zero performance. The Russell 2000 (+5.90%) led the way followed by the Nasdaq (+5.48%), S&P 500 (+3.81$), and DJIA (+2.29%). This was the largest weekly performance by the Russell 2000 in 18 weeks.

Both the Bloomberg U.S. Aggregate Bond Index (+0.31%) and the Bloomberg Municipal Bond Index (+0.31%) appreciated on the week. This was the first week of the year where both indices ended in plus-side territory.

Overseas broad market indices traded deep in the red once again-the DAX 30 (-6.48%), FTSE 100 (-2.71%), and Nikkei 225 (-0.68%), each depreciated over the week. This was the worst week for the DAX 30 since the end of October 2020.

Rates/Yields

The two- and three-year Treasury yields fell week over week for the first time all year (-5.50% and -5.90%, respectively). The 10-two Treasury yield spread fell once again (-6.37%).

As of February 24, the U.S. 30-year fixed-rate mortgage average fell to 3.89%-a 0.77% decrease from the prior week and the first week in four where the average rate declined. The United States Dollar Index (DXY, +1.24%) increased while the VIX (-0.91%%) decreased over the week.

Market Recap

Our fund-flows week kicked off Thursday, February 24, with a volatile day in the markets. Equity markets rebounded to finish the day in the black-Nasdaq (+3.34%), Russell 2000 (+2.67%), S&P 500 (+1.50%), and DJIA (+0.28%). Investors also pushed into the bond market. The 30-year Treasury yield rose 0.79% as all other yields along the curve fell. The DXY increased 0.98%-its largest single-day increase in more than one year. This day was marked by the news of Russia’s invasion of Ukraine-a moment that seemingly has been building up for some time now. President Joe Biden later announced another round of U.S. sanctions against Russia. Oil futures increased to more than $100 per barrel for the first time in more than seven years. Federal Reserve officials have come out to say the Fed plans on moving forward with increasing interest rates to combat inflation, but geopolitical turmoil may change the central bank’s plans. The Mortgage Bankers Association (MBA) reported mortgage applications fell over the previous week by the largest percentage decline since December 2019 (-13.1%).

On Friday, February 25, board-based domestic equity markets rose for the second consecutive day-DJIA (+2.51%), Russell 2000 (+2.25%), S&P 500 (+2.24%), and Nasdaq (+1.64%). The DJIA posted its largest single-day gain since November 2000. The Department of Commerce reported in the Personal Consumption Expenditure (PCE) index increased 2.1% in February, well more than estimates (+1.6%). This marks a sharp reversal from December’s 0.8% decrease. Core-PCE (excluding food and energy) rose 0.5% over last month and 5.2% from last year, marking the largest annual increase since April 1983. The two- and three-year Treasury yields increased 2.59% and 2.53%, respectively, on the day.

On Monday, February 28, the last trading session of the month, equity markets traded mixed-Nasdaq (+0.41%), Russell 2000 (+0.35%), S&P 500 (-0.24%), and DJIA (-0.49%). The U.S. and its allies increased the pressure on Russia by expanding financial sanctions to include banning Russian banks from the SWIFT messaging system. Oil prices increased above $95 per barrel as bp and Shell both announced their intention to divest from their stakes in Russia. Investors poured into fixed income investments as yields along the Treasury curve each fell by more than 5.0%-the 10-year Treasury yield fell by 7.31%, marking its largest single-day fall since November 26, 2011.

On Tuesday, March 1, concerns surrounding energy and commodity supply lines increased as the Russia-Ukraine conflict continued. Oil futures rose to more than $106 on the day, the highest level in more than seven years. Silver and gold prices increased while investors continued to move into a risk-off environment, Treasury yields fell for the second straight day. Broad-based U.S. equity markets fell, led by the Russell 2000 (-1.93%) and DJIA (-1.76%).

Our fund-flows week wrapped up Wednesday, March 2, headlined by Federal Reserve Chair Jerome Powell’s comments that the Fed will have to remain flexible in its policy heading into the March 15-16 meeting. He said,

“I do think it’s going to be appropriate for us to proceed along the lines we had in mind before the Ukraine invasion happened…In this very sensitive time at the moment, it’s important for us to be careful in the way we conduct policy simply because things are so uncertain, and we don’t want to add to that uncertainty.”

Powell still acknowledges the central bank’s intention to raise rates by a quarter percentage point this month, followed by incremental increases throughout the year. ADP also reported that the private sector job creation improved more than expected over the last month. Investors sold off Treasuries with the two-, three-, five-, and 10-year yields increasing by double-digit percentage points. Equity markets stormed back from Tuesday’s session-Russell 2000 (+2.51%), S&P 500 (+1.86%), DJIA (+1.79%), and Nasdaq (+1.62%).

Exchange-Traded Equity Funds

Exchange-traded equity funds recorded $6.0 billion in weekly net inflows, marking their fourth consecutive week of inflows. The macro group posted a positive 3.13% on the week.

Sector-other ETFs (+$3.2 billion), international equity ETFs (+$1.8 billion), growth/value large-cap ETFs (+$1.5 billion), and equity income funds ETFs (+$885 million) were the four largest equity ETF subgroups to post inflows this week. Sector-other ETFs logged a positive 3.39% on the week as they realized their fourth largest weekly intake on record. This was also the fourth straight week of net positive flows for the subgroup.

Sector-financial/banking ETFs (-$2.3 billion), sector-real estate (-$962 million), and convertible & preferreds ETFs (-$164 million) were the top flow detractors under the macro group. Despite future rate increases still on the horizon, sector-financial/banking ETFs logged their largest weekly outflows in 32 weeks. This subgroup has suffered back-to-back weeks of outflows greater than $1 billion for the first time since the start of the pandemic.

Over the past fund-flows week, the top two equity ETF flow attractors were SPDR S&P 500 ETF (SPY) (+$2.4 billion) and SPDR Gold (GLD) (+$1.3 billion). This is the second straight week where both these equity ETFs have reported the top inflows.

Meanwhile, the bottom two equity ETFs in terms of weekly outflows were iShares: Core S&P 500 (NYSEARCA:IVV) (-$1.5 billion) and Select Sector: Financials SPDR (XLF) (-$1.2 billion).

Exchange-Traded Fixed Income Funds

Exchange-traded fixed income funds observed $5.8 billion in weekly net inflows-the macro group’s third week of inflows in four. Fixed income ETFs reported a weekly return of positive 0.22% on average.

Government-Treasury ETFs (+$4.4 billion), corporate-investment grade ETFs (+$2.4 billion), and corporate-high yield ETFs (+$153 million) were the top attractors of capital under fixed income ETFs. Government-Treasury ETFs have observed weekly inflows in six of the last seven weeks as they returned positive performance for the second consecutive week (+0.84%, on average). This was the tenth largest weekly inflow on record for government-Treasury ETFs.

Flexible funds ETFs (-$523 million), international & global debt ETFs (-$456 million), and government-mortgage ETFs (-$199 million) witnessed the largest outflows under the fixed income ETF macro group. Flexible funds ETFs reported their largest weekly outflows since March 25, 2020, while realizing a negative 0.69%, on average, over the week.

iShares: iBoxx $Investment Grade Corporates (LQD) (+$2.1 billion), iShares: 7-10 Treasury Bond ETF (NASDAQ:IEF) (+$1.8 billion), and iShares: Short Treasury Bond ETF (SHV) (+$1.3 billion) attracted the largest amounts of weekly net new money for taxable fixed income ETFs.

On the other hand, iShares: MBS ETF (MBB) (-$406 million), iShares: JPM USD Emerging Markets ETF (EMB) (-$359 million), and iShares: Core US Aggregate Bond ETF (AGG) (-$192 million) suffered the largest net weekly outflows.

Conventional Equity Funds

Conventional equity funds (ex-ETFs) witnessed weekly outflows (-$4.1 billion) for the fourth straight week. Conventional equity funds posted a weekly return of a positive 2.52% on average.

Growth/value large-cap funds (-$1.2 billion), international equity funds (-$1.2 billion), and growth/value small-cap funds (-$392 million) were the largest subgroup outflows under conventional equity funds. Both growth/value large-cap and growth/value small-cap conventional funds have suffered four consecutive weeks of outflows.

Gold and natural resources (+$268 million) conventional funds was the only subgroup to record weekly inflows. This subgroup has observed three straight weekly inflows for the first time since June 2021. Gold and natural resources conventional funds realized a positive 5.25% on the week, marking its highest weekly return since May 2020.

Conventional Fixed Income Funds

Conventional fixed income funds realized a weekly outflow of $10.9 billion-marking their sixth straight week of outflows and eleventh largest all time. The subgroup reported a weekly performance of positive 0.59% on average-their first week with positive performance in four.

Corporate-investment grade (-$5.8 billion), flexible funds (-$2.5 billion), and international & global debt (-$678 million) funds led the macro group in outflows. Conventional corporate-investment grade funds have now suffered five weeks of outflows over the previous six. The subgroup, however, posted its first week of positive performance (+0.18%) in four weeks.

No conventional fixed income subgroup reported weekly net inflows for the week ended March 2, 2022.

Municipal bond funds (ex-ETFs) returned a positive 0.37% over the fund-flows week-their second weekly positive performance in a row. The subgroup experienced $2.8 billion in outflows, marking their eighth week in a row of outflows. The subgroup has logged five straight weeks with a four-week moving outflow average of greater than $1.1 billion. 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.