Investors were net sellers of fund assets (including those of conventional funds and ETFs) for the second consecutive week, redeeming a net $2.2 billion for the LSEG Lipper fund-flows week ended Wednesday, June 28. Fund investors were net purchasers of equity funds (+$2.8 billion) while being net redeemers of taxable bond funds (-$2.5 billion), money market funds (-$2.4 billion), and tax-exempt fixed income funds (-$30 million) for the week.
Market Wrap-Up
Rising concerns around future interest rate hikes, renewed global recessionary fears, and the possibility new restrictions on technology sales to China by U.S. firms led to mixed market returns during the fund-flows week.
On the domestic equity side of the equation, the Nasdaq Composite (+0.66%) posted the strongest return of the broad-based U.S. indices, followed by the S&P 500 (+0.26%) and the Russell 2000 (-0.23%). The Dow Jones Industrial Average (-0.29%) was the laggard of the group. Overseas, the Xetra DAX Total Return Index (-0.96%) did the best job of mitigating losses of the often-followed broad-based international indices, followed by the Shanghai Composite (-0.98%) and the FTSE 100 (-1.72%). Meanwhile, the Nikkei 225 (-2.86%) posted the largest declines for the flows week.
For the fund-flows week, the Morningstar LSTA U.S. Leveraged Loan Index (+0.36%) outpaced the Bloomberg Municipal Bond Index (+0.23%) and the Bloomberg U.S. Aggregate Bond Index (+0.09%). The 10-year Treasury yield declined one basis point (bp) for the week—settling at 3.71%—while the two-year Treasury yield rose three bps to close out the flows week at 4.71%. The U.S. Treasury yield curve remained inverted, with the two- and 10-year Treasury yield spread (-100 bps) widening by four bps for the week, its largest spread since March 8.
On Thursday, June 22, U.S. stocks shook off rate-hike worries closing mostly higher, with the S&P 500 and the Nasdaq snapping a three-day losing streak after investors evaluated new hawkish comments from Federal Reserve Chair Jerome Powell and interest rate hikes from a few global central banks on the day. Despite the threat of higher interest rates, several large tech issues rallied on investors’ continued interest in artificial intelligence. However, casting a pall over the market, Powell stated that senior Fed officials expect the Fed to hike interest rates “a couple of times” later this year. Earlier in the day, the Bank of England, Norway’s central bank, and the Swiss National Bank hiked their interest rates.
The Nasdaq snapped an eight-week winning streak on Friday, June 23, on global recessionary fears. Investors focused on the slew of interest rate hikes that occurred on Thursday and speculated on how they might impact global economic growth. In other news, the S&P Global (NYSE:SPGI) U.S. services index declined to 54.1 from 54.9 in May.
The Dow extended its longest losing streak since September on Monday, June 26—declining for the sixth straight session—after a short-lived revolt in Russia over the weekend pushed investors to reassess their global economic outlooks. Worries about the global economy came into focus after the June German Ifo Business Climate Index declined to 88.5 from May’s reading of 91.5, falling below analysts’ expectations.
Led by mega tech issues, U.S. stocks moved higher on Tuesday, June 27, after data suggested the economy remained strong despite the prospect of higher interest rates in the near future. Orders for manufactured U.S. durable goods jumped 1.7% in May, rising for the third month running. The Conference Board reported that its June consumer-confidence index jumped 7.2 points to a 17-month high of 109.7. In other news, investors appeared to cheer the comments from China’s Premier Li Qiang, who stated that China’s economy remains on track to attain its annual growth target of 5%.
On Wednesday, June 28, U.S. markets were choppy after Powell reiterated that the Fed is likely to raise rates twice more in 2023 to combat inflation and after investors learned that the Biden administration is considering a new ban on sales of artificial intelligence chips to China—stalling the recent rally in select mega-cap tech stocks. Fed-fund futures traders pushed the probability of a 25-bps hike in July to 82%, according to the CME FedWatch tool.
Exchange-Traded Equity Funds
Equity ETFs witnessed net inflows for the second week in three, attracting a little less than $7.0 billion for the most recent fund-flows week. Authorized participants (APs) were net buyers of domestic equity ETFs (+$8.2 billion), injecting money also for the second week in three, while nondomestic equity ETFs witnessed net outflows for the second consecutive week, handing back $1.2 billion this past week. Large-cap ETFs (+$9.4 billion) observed the largest net inflows of the equity ETF macro-groups for the fund-flows week, followed by small-cap ETFs (+$450 million) and sector-technology ETFs (+$329 million). Meanwhile, the commodities heavy sector-other ETFs (-$2.0 billion) suffered the largest net outflows, bettered by international equity ETFs (-$1.2 billion).
SPDR S&P 500 (NYSE:SPY) (SPY, +$5.0 billion) and Invesco QQQ Trust 1 (QQQ, +$1.9 billion) attracted the largest amounts of net new money of all individual equity ETFs. At the other end of the spectrum, JPMorgan (NYSE:JPM) BetaBuilders Europe ETF (BBEU, -$1.7 billion) experienced the largest individual net redemptions and Energy Select Sector SPDR Fund (XLE (NYSE:XLE), -$411 million) suffered the second largest net redemptions of the week.
Exchange-Traded Fixed Income Funds
For the first week in four, taxable fixed income ETFs experienced net outflows, handing back $1.8 billion this week. APs were net purchasers of corporate investment-grade debt ETFs (+$510 million), international & global debt ETFs (+$184 million), and corporate high-quality ETFs (+$77 million) while being net redeemers of government-Treasury ETFs (-$1.2 billion) and corporate high-yield ETFs (-$972 million).
iShares Core US Aggregate Bond ETF (AGG, +$531 million), PIMCO Enhanced Short Maturity Active ETF (MINT, +$433 million), and JPMorgan BetaBuilders US Aggregate Bond ETF (BBAG, +$289 million) attracted the largest amounts of net new money of all individual taxable fixed income ETFs. Meanwhile, iShares 1-3 Year Treasury Bond ETF (SHY, -$1.2 billion) and iShares iBoxx $ High Yield Corporate Bond ETF (HYG, -$582 million) handed back the largest individual net redemptions for the week.
For the second consecutive week, municipal bond ETFs witnessed net inflows, attracting $81 million this week. Invesco National AMT-Free Municipal Bond ETF (PZA, +$37 million) witnessed the largest draw of net new money of the municipal bond ETFs, while iShares Short-Term National Muni Bond ETF (SUB, -$62 million) experienced the largest net redemptions in the subgroup.
Conventional Equity Funds
Conventional fund (ex-ETF) investors were net sellers of equity funds for the seventy-third week in a row—redeeming $4.2 billion—with the macro-group posting a 0.01% market loss for the fund-flows week. Domestic equity funds—suffering net redemptions of slightly less than $3.6 billion—witnessed their twenty-sixth consecutive week of net outflows while posting a 0.27% market advance on average for the fund-flows week. Nondomestic equity funds—posting a 0.88% weekly market loss on average—observed their nineteenth week of net outflows in a row, handing back slightly less than $653 million this week.
On the domestic equity side, fund investors were net redeemers of large-cap funds (-$1.5 billion) and equity income funds (-$609 billion). Investors on the nondomestic equity side were net redeemers of global equity funds (-$334 million) and international equity funds (-$319 million) for the week.
Conventional Fixed Income Funds
For the second week in a row, taxable bond funds (ex-ETFs) witnessed net outflows—handing back $700 million this past week—while posting a 0.02% market gain on average for the fund-flows week. The corporate investment-grade debt funds macro-group attracted the largest draw of net money for the week—taking in $410 million—followed by corporate high-yield funds (+$242 million) and corporate high-quality funds (+$83 million). Flexible funds (-$739 million) suffered the largest net redemptions, bettered by balanced funds (-$327 million) and international & global debt funds (-$281 million).
The municipal bond funds group posted a 0.04% market decline on average during the fund-flows week (their first weekly market decline in five) and witnessed net outflows for the second week in three, handing back $106 million this week. High-Yield Municipal Debt Funds (+$147 million) witnessed the largest net inflows of the macro-group, followed by General & Insured Municipal Debt Funds (+$119 million). Meanwhile, Short Municipal Debt Funds witnessed the largest net outflows, handing back $170 million.