During LSEG Lipper’s fund-flows week that ended January 3, 2024, investors were overall net purchasers of fund assets (including both conventional funds and ETFs) for the ninth week in 11, adding a net $56.2 billion.
Money market funds (+$57.0 billion, +0.36%) and taxable bond funds (+$5.7 billion, -0.47%) were the only attracters of net new capital.
Equity funds (-$3.9 billion, -2.17%), commodities funds (-$1.1 billion, -1.43%), alternative investments funds (-$617 million, +0.09%), tax-exempt bond funds (-$558 million, +0.14%), and mixed-assets funds (-$353 million, -1.25%) suffered outflows over the week.
Index Performance
At the close of LSEG Lipper’s fund-flows week, U.S. broad-based equity indices reported negative returns—DJIA (-0.60%), Nasdaq (-3.36%), Russell 2000 (-5.18%), and S&P 500 (-1.61%).
Both the Bloomberg Municipal Bond Total Return Index (-0.02%) and Bloomberg U.S. Aggregate Bond Total Return Index (-0.74%) rose over the week.
Overseas indices traded mostly down—DAX (-2.99%), FTSE 100 (-1.78%), Nikkei 225 (-1.59%), S&P/TSX Composite (-2.01%), and Shanghai Composite (+1.82%). The Shanghai Composite has logged back-to-back weeks of gains after suffering four straight weeks in the black.
Rates/Yields
Both the 2-year (+1.93%) and 10-year (+3.01%) rose over the course of the week.
According to Freddie Mac, the 30-year fixed-rate average (FRM) increased for the first week in nine—the weekly average is currently at 6.62%. The US Dollar Index (DXY, +1.69%) and VIX (+11.47%) both increased over the course of the week.
The CME FedWatch Tool currently has the likelihood of the Federal Reserve lowering interest rates by 25 basis points (bps) at 6.7%. This tool forecasted a 16.5% possibility of a 25-bps cut one week ago. The next meeting is scheduled for January 31, 2024.
Market Recap
On Thursday, December 28, the Department of Labor (DOL) reported that the number of Americans filing initial claims for unemployment benefits increased by 12,000 to 218,000. The National Association of REALTORS published its Pending Home Sales Report which showed that pending sales in November remained flat compared to October numbers. Total number of contract signings had growth month over month in the Northwest, Midwest, and West, but contracted in the South—all four regions reported fewer pending sales year over year. The U.S. Census Bureau released its Monthly Advance Economic Indicators Report which highlighted both advance wholesale (-0.2%) and retail (-0.1%) inventories were down month over month. Wholesale inventories (-3.1%) were down year over year as well, whereas retail inventories saw a 5.1% jump from last November. Equity markets traded mixed on the day as Treasury yields rose slightly along all key maturities.
The calendar week and year ended Friday, December 29, with equity markets finishing 2023 in the red—the Russell 2000 (-1.52%), Nasdaq (-0.56%), S&P 500 (-0.28%), and DJIA (-0.05%) were all down. The U.S. Chicago Purchasing Managers Index (PMI), which attempts to measure the economic health of the manufacturing sector in the Chicago region, came in at a level of 46.9. A reading below 50 indicates contraction—last month’s reading was 55.8. On a shortened trading day in the bond market, short-term years fell as the two- (-0.77%) and three-year (-0.74%) Treasury dropped.
On Monday, January 1, markets were closed in observance of New Year’s Day.
On Tuesday, January 2, the Department of Commerce reported that U.S. construction spending increased less than forecasted during November. Construction spending during the month rose 0.4%, while October spending was revised to an increase of 1.2%—up from 0.6%. The report also highlighted that spending on public construction projects decreased 0.7% after rising 1.3% the month prior. Both state and local government spending also declined 0.5% during November. The DJIA (+0.07%) improved on the day, while the Nasdaq (-1.63%), Russell 2000 (-0.70%), and S&P 500 (-0.57%) fell. The two- (+1.74%) and five-year (+2.08%) Treasury yields both spiked to start the new year.
Our fund-flows week wrapped up Wednesday, January 3. The DOL published its Job Openings and Labor Turnover Survey (JOLTS Report) that showed U.S. job openings fell to nearly a three-year low last month while workers leaving their jobs dropped to the lowest level since February 2021. Despite a “cooling” job market, there are still 1.4 job openings for every unemployed person, up from 1.36 in October. Hiring fell by 363,000 to 5.5 million, which was the lowest level since April 2020. Resignations also decreased month over month to the lowest total since February 2021. U.S. broad-based equity markets decreased on the day—Russell 2000 (-2.66%), Nasdaq (-1.18%), S&P 500 (-0.80%), and DJIA (-0.76%). Treasury yields fell all along the curve, led by a 0.86% drop in the 10-year yield.
Exchange-Traded Equity Funds
After recording its second- and third-largest weekly inflows of 2023, exchange-traded equity funds recorded $6.4 billion in weekly net inflows to start the new year—marking the fourteenth straight week of ETFs attracting new capital. The macro-group posted a 2.14% loss on the week, its first week in 10 realizing a loss.
Large-cap ETFs (+$3.0 billion), small-cap ETFs (+$2.5 billion), and emerging markets equity ETFs (+$1.0 billion) attracted the top inflows among the equity ETF subgroups. Large-cap ETFs realized their third straight weekly inflow as they have posted 14 net inflows over the last 15. The subgroup, however, has only recorded two weeks of gains during the previous six.
U.S. sector equity ETFs (-$2.3 billion) and world sector equity funds (-$216 million) suffered the only weekly outflows under equity ETFs. The Lipper Science & Technology classification (-$779 million) saw the largest weekly outflow under the U.S. sector equity subgroup. U.S. sector equity funds have witnessed three straight weeks of outflows despite realizing gains in nine of the last 10 weeks.
Over the past fund-flows week, the two top equity ETF flow attractors were iShares Russell 2000 ETF (NYSE:IWN) (IWN, +$1.8 billion) and Invesco QQQ Trust Series 1 (NASDAQ:QQQ) (QQQ, +$1.6 billion).
Meanwhile, the two bottom equity ETFs in terms of weekly outflows were iShares Russell 1000 Value ETF (NYSE:IWD) (IWD, -$560 million) and Energy Select Sector SPDR® Fund (NYSE:XLE) (XLE (NYSE:XLE), -$320 million).
Exchange-Traded Fixed Income Funds
Exchange-traded taxable fixed-income funds observed a $5.7 billion weekly inflow—the macro-group’s second straight inflow. Fixed income ETFs reported a return of a 0.60% loss on average, its first weekly loss in 10.
Short/intermediate government & Treasury ETFs (+$3.2 billion), short/intermediate investment grade ETFs (+$1.5 billion), and general domestic taxable fixed income funds (+$932 million) were the top subgroups under taxable bond ETFs to observe inflows. Short/intermediate government & Treasury ETFs attracted their first week of net new capital in nine weeks despite nine positive weekly returns in 11.
High-yield funds (-$317 million) was the only subgroup to see net outflows. High-yield funds suffered its first weekly outflow in nine weeks while realizing its first weekly loss in 11 weeks.
Municipal bond ETFs reported a $203 million outflow over the week, marking their first week of outflows over the last four. The subgroup realized a positive 0.03% return—the tenth straight week of gains.
US Treasury 3 Month Bill ETF (NASDAQ:TBIL) (TBIL, +$2.8 billion) and iShares Core U.S. Aggregate Bond ETF (NYSE:AGG) (AGG, +$753 million) attracted the largest amounts of weekly net new money for taxable fixed income ETFs.
On the other hand, iShares iBoxx $ High Yield Corporate Bond ETF (NYSE:HYG) (HYG, -$612 million) and iShares 20+ Year Treasury Bond (NASDAQ:TLT) ETF (TLT, -$434 million) suffered the largest weekly outflows under all taxable fixed income ETFs.
Conventional Equity Funds
Conventional equity funds (ex-ETFs) witnessed weekly outflows (-$10.3 billion) for the ninety-ninth straight week. Conventional equity funds posted a weekly return of negative 2.22%, the first week of losses in 10.
Large-cap funds (-$3.1 billion), mid-cap funds (-$1.4 billion), and developed international markets funds (-$1.4 billion) were the top conventional equity fund subgroups to realize weekly outflows. Large-cap mutual funds saw their thirteenth weekly outflow over the past 14 weeks as they realized a loss in two of the past three weeks.
No equity mutual fund subgroups recorded inflows over the trailing week.
Conventional Fixed Income Funds
Conventional taxable-fixed income funds realized a weekly outflow of $78 million—marking their fifteenth weekly outflow over the past 17. The macro-group logged a negative 0.38% on average—their first sub-zero return in 10 weeks.
U.S. government & Treasury fixed income funds (-$216 million), world income funds (-$136 million), and emerging markets debt funds (-$127 million) suffered the top outflows among conventional taxable fixed income subgroups over the trailing week. U.S. government & Treasury fixed income funds have seen 10 consecutive weekly outflows despite realizing a weekly gain in eight of those 10.
Short/intermediate investment-grade funds (+$305 million), short/intermediate government and treasury funds (+$136 million), and alternative bond funds (+$37 million) were the top subgroups to post inflows on the week. Short/intermediate investment-grade funds witnessed their first weekly inflow in four weeks—they have seen nine positive weekly returns in 10.
Municipal bond conventional funds (ex-ETFs) returned a positive 0.17% over the fund-flows week, marking 10 straight weeks of plus-side returns. The subgroup experienced a $354 million outflow, marking the twenty-third straight weekly outflow.