During LSEG Lipper’s fund-flow week that ended August 30, 2023, investors were overall net purchasers of fund assets (including both conventional funds and ETFs) for the third week in four, adding a net $7.5 billion.
Equity funds (-$4.6 billion) and taxable bond funds (-$217 million) observed weekly outflows, while money market funds (+$11.9 billion) and tax-exempt bond funds (+$408 million) registered inflows.
Index Performance
At the close of LSEG Lipper’s fund-flows week, U.S. broad-based equity indices reported positive returns—the Russell 2000 (+1.77%), Nasdaq (+2.17%), S&P 500 (+1.78%), and DJIA (+1.21%) were all in the black. This was the second consecutive week of gains for both the Nasdaq and S&P 500.
The Bloomberg Municipal Bond Total Return Index (+0.26%) recorded its first plus-side return in five weeks. The Bloomberg U.S. Aggregate Bond Total Return Index (+0.54%) logged its second straight positive weekly return.
Overseas indices traded up—the Nikkei 225 (+0.25%), FTSE 100 (+2.45%), and DAX (+1.81%), and Shanghai Composite (+1.92%).
Rates/Yields
The 10-two Treasury yield spread has remained negative (currently -0.77) for more than one year. The 10-year and 30-year Treasury yields fell over the week (-1.63% and -0.89%, respectively).
According to Freddie Mac, the 30-year fixed-rate average (FRM) fell after five straight weeks of increases—the weekly average is currently at 7.18%. Both the United States Dollar Index (DXY, -0.25%) and VIX (-15.13%) fell over the course of the week.
The CME FedWatch Tool currently has the likelihood of the Federal Reserve increasing interest rates by 25 basis points (bps) at 11.5%. This tool forecast a 19.0% possibility of the same hike one week ago. The next meeting is scheduled for September 20, 2023.
Market Recap
Our fund-flow week kicked off on Thursday, August 24, with the market digesting the Securities and Exchange Commission’s (SEC) most recent adoption of private fund regulations. In a three to two vote, the SEC announced there will be new requirements on reporting, disclosures, audits, and treatment of preferential terms for private funds. The new regulations will require private equity, hedge funds, and venture capital to provide investors with regular statements that include fund fees, expenses, and performance metrics. Nvidia (NASDAQ:NVDA) continued to rise prior to market hours on Thursday (+8.0%) after the semiconductor company reported its Q2 results on Wednesday. Sales for the company came in at a record $10.3 billion, beating the estimates of $8.0 billion. Weekly unemployment insurance claims were reported by the Department of Labor (DOL) at 230,000, a decrease of 10,000 from the prior week’s revised level. Equity markets finished down on the day, led by the Nasdaq (-1.87%), while a selloff ensued in the Treasury markets—the 10-year Treasury yield rose 1.22%.
On Friday, August 25, LSEG Lipper reported its weekly classification performance report. The report highlighted that Lipper Large-Cap Growth Funds (+0.64%) led the U.S. Diversified Equity classifications, while Lipper Large-Cap Value Funds (-0.54%) was the laggard of the group. In the Sector Equity classifications, Lipper Science & Technology Funds (+1.10%) led the macro-group, while Specialty/Miscellaneous Funds (-1.14%) was at the bottom of the group. Other highlights included: China Region Funds (-1.75%) significantly underperformed the World Equity macro-group average (-0.01%). Precious Metals Equity Funds (+3.82%), Latin American Funds (+2.67%), and Commodities Agriculture Funds (+2.16%) were the three top classifications over the past week in all equity classifications. In terms of fixed income classifications, over the course of the last week Emerging Markets Local Debt Funds (+0.86%), General U.S. Treasury Funds (+0.73%), and Corporate Debt A-Rated Funds (+0.72%) were the three top performers. Equity markets rallied as the Federal Reserve Chair Jerome Powell stated there has been stronger than expected economic growth. Powell went on to talk about how consumer spending has been ”especially robust” while he sees positive signs in the housing market. The two-year Treasury yield rose 1.06% while the 10-year yield fell 0.05%.
On Monday, August 28, equity markets rose—Nasdaq (+0.84%), Russell (+0.83%), S&P 500 (+0.63%), and DJIA (+0.62%) were all up. Treasury yields fell on the day, led by the five-(-0.74%) and 10-year (-0.73%) yields. In international news, U.S. Commerce Secretary Gina Raimondo has become the third cabinet secretary to visit China this year. Raimondo stated, “Of course, in matters of national security, there is no room to compromise or negotiate…the vast majority of our trade and investment relationship does not involve national security concerns.” The visit comes as China continues to struggle with its economy and in particular its real estate sector.
On Tuesday, August 29, the Conference Board reported that the Consumer Confidence Index fell in August (106.1) from last month’s revised reading (114.0). Dana Peterson, Chief Economist at the Conference Board, said,
“August’s disappointing headline number reflected dips in both the current conditions and expectations indexes…consumers were once again preoccupied with rising prices in general, and for groceries and gasoline in particular.”
The S&P CoreLogic Case-Shiller Indices showed all 20 major metro markets reported month-over-month price increases for the fourth straight month. Equity markets rose for the third straight day—the Nasdaq (+1.74%), S&P 500 (+1.45%), Russell (+1.42%), and DJIA (+0.85%) were all in the black. The 10-year Treasury yield fell 2.14%.
Our fund-flow week wrapped up Wednesday, August 30, with equity markets realizing gains for the fourth straight day as Treasury yields were flat. Hurricane Idalia hit the Gulf Coast of Florida in the early morning as a Category 3, but was downgraded to a tropical storm as it crossed Georgia and Carolinas. Private employers added 177,000 jobs in August, according to payroll company ADP. Chief Economist Nela Richardson said, “This month’s numbers are consistent with the pace of job creation before the pandemic. After two years of exceptional gains tied to the recovery, we’re moving toward more sustainable growth in pay and employment as the economic effects of the pandemic recede.” The National Association of Realtors reported that pending home sales increased 0.9% in July 2023, marking the second straight month of gains. The Northeast and Midwest posted losses month over month as sales in the South and West increased. All four regions saw 12-month declines.
Exchange-Traded Equity Funds
Exchange-traded equity funds recorded $762 million in weekly net inflows, marking the eighth weekly inflow in 10. The macro-group posted a 1.82% gain on the week, its second consecutive week in the black.
Growth/value-large cap ETFs (+$1.2 billion), equity income ETFs (+$580 million), and sector-technology ETFs (+$382 million) reported net inflows on the week. Growth/value-large cap ETFs have attracted new capital in four of the last six weeks after realizing back-to-back weekly gains.
International equity ETFs (-$613 million), sector-energy ETFs (-$447 million), and growth/value-small cap ETFs (-$223 million) were the largest outflows under the macro-group. International equity ETFs have now suffered three straight weekly outflows despite two consecutive weeks of plus-side performance.
Over the past fund-flows week, the two top equity ETF flow attractors were iShares: Core S&P 500 (NYSE:IVV) (IVV, +$1.5 billion) and SPDR Gold Trust (P:GLD) (GLD (NYSE:GLD), +$325 million).
Meanwhile, the bottom two equity ETFs in terms of weekly outflows were Invesco QQQ Trust 1 (NASDAQ:QQQ) (QQQ, -$1.4 billion) and Invesco S&P 500 Equal Weight ETF (NYSE:RSP) (RSP, -$557 million).
Exchange-Traded Fixed Income Funds
Exchange-traded taxable fixed-income funds observed a $2.0 billion weekly inflow—the macro-group’s third weekly outflow in four. Fixed income ETFs reported a weekly return of positive 0.37% on average, their third week in the black over the last four.
Corporate-high yield ETFs (+$1.1 billion), government-Treasury ETFs (+$684 million), and corporate-investment grade ETFs (+$402 million) were the top taxable fixed income subgroups to witness inflows on the week. Corporate-high yield ETFs attracted its first week of inflows after five straight weeks of outflows. The subgroup also saw a gain on the week (+0.74%) after back-to-back weeks in the red.
International & global debt ETFs (-$191 million) and corporate-high quality ETFs (-$6 million) were the only taxable fixed-income subgroups to post outflows over the week. International & global debt ETFs have now observed four consecutive weeks of outflows as they have suffered four weeks of losses in the last six.
Municipal bond ETFs reported a $760 million inflow over the week, marking their first weekly inflow over the past three weeks. The subgroup realized a positive 0.25% gain— its first positive weekly return in five weeks.
SPDR Bloomberg High Yield Bond ETF (NYSE:JNK) (JNK, +$590 million) and SPDR Bloomberg 1-3 Month T-Bill (BIL, +$523 million) attracted the largest amounts of weekly net new money for taxable fixed income ETFs.
On the other hand, iShares: TIPS Bond ETF (TIP, -$878 million) and iShares: iBoxx $Investment Grade Corporates ETF (NYSE:LQD) (LQD, -$317 million) suffered the largest weekly outflows under all taxable fixed-income ETFs.
Conventional Equity Funds
Conventional equity funds (ex-ETFs) witnessed weekly outflows (-$5.4 billion) for the twentieth straight week. Conventional equity funds posted a weekly return of positive 1.73%, the second consecutive week of gains.
Growth/value-large cap (-$2.8 billion), growth/value-small cap funds (-$553 million), and equity income funds (-$520 million) were the largest subgroup outflows under conventional equity funds. Growth/value-large cap funds have suffered 36 consecutive weeks of outflows while observing a 1.82% gain on average over the last week. The four-week net flow moving average has remained negative for 84 weeks.
No conventional equity fund subgroup reported inflows over this Lipper fund-flows week.
Conventional Fixed Income Funds
Conventional taxable-fixed income funds realized a weekly outflow of $2.2 billion—marking their fourth weekly outflow in five weeks. The macro-group logged a positive 0.61% on average—their third weekly gain in four.
Conventional corporate-investment grade funds (-$1.4 billion), flexible funds (-$359 million), and government mortgage funds (-$269 million) reported the largest weekly outflows under taxable fixed-income conventional funds. Conventional corporate-investment grade funds have seen back-to-back weekly outflows, despite two straight weeks of gains.
Corporate-high yield funds (+$142 million) and government treasury and mortgage funds (+$3 million) were the only taxable fixed income macro-group to produce inflows. Corporate-high yield conventional funds attracted new capital for the first week in three as they logged a return of positive 0.63% on the week.
Municipal bond conventional funds (ex-ETFs) returned a positive 0.14% over the fund-flows week—their first weekly gain in six. The subgroup experienced a $352 million outflow, marking the ninth weekly outflow in 10.