Investors were net purchasers of fund assets (including those of conventional funds and ETFs) for the fifth week in a row, injecting a net $39.8 billion for the Refinitiv Lipper fund-flows week ended Wednesday, March 29. However, the headline figure is a bit misleading.
Fund investors were net purchasers of money market funds (+$61.5 billion) while being net redeemers of equity funds (-$20.5 billion, their fifteenth largest weekly net outflows on record), taxable bond funds (-$983 million), and tax-exempt fixed income funds (-$194 million) for the week.
Market Wrap-Up
Despite a rise in Treasury yields, a relative calm in the banking sector and a rally in technology issues pushed equity markets higher during the fund-flows week. This is because some investors bet that the Federal Reserve might be considering a pivot toward a looser monetary policy sometime in 2023 after its expected 25-basis-point (bp) interest rate hike the week before.
On the domestic equity side of the equation, investors became more risk-seeking for the fund-flows week. The Russell 2000 (+2.56%) posted the strongest returns of the broad-based U.S. indices, followed by the S&P 500 (+2.31%) and the Nasdaq Composite (+2.20%).
The Dow Jones Industrial Average (+2.15%) was the relative laggard of the group. Overseas, the Nikkei 225 Index (+1.65%) posted the strongest plus-side returns of the often-followed broad-based international indices, followed by the Xetra DAX (+1.10%) and the FTSE 100 (+0.62%). Meanwhile, the Shanghai Composite (-0.75%) suffered the only decline.
For the fund-flows week, the Bloomberg Municipal Bond Index (+0.49%) outpaced the Morningstar LSTA U.S. Leveraged Loan Index (+0.35%) and the Bloomberg U.S. Aggregate Bond Index (-0.78%).
On Thursday, March 23, U.S. stocks ended mostly higher as investors reassessed the banking system stability and the Federal Reserve Board’s 25-bp rate hike the day before. Despite recent contradictions between comments made by Treasury Secretary Janet Yellen and Fed Chair Jerome Powell on the support being provided to bank depositors, expectations of at least one more rate hike and continued support for the U.S. banking sector helped equity issues.
Shrugging off Powell’s somewhat hawkish statement on Wednesday that getting inflation lower still “has a way to go,” it appears that some investors believe the Fed is getting ready to pivot to cutting interest rates soon. The Swiss National Bank and Bank of England also hiked their key lending rates this week. In other news, first-time jobless claims for the prior week declined to 191,000, its lowest in three weeks. The two-year Treasury yield fell 20 bps, closing out the day at 3.76%, while the 10-year Treasury yield declined 10 bps to 3.38%.
Despite new banking concerns, U.S. stocks ended higher on Friday, March 24, with the Dow snapping a two-week losing streak and the Nasdaq and S&P 500 posting back-to-back weekly gains. According to a Reuters report, U.S. and European bank stocks were back under pressure for the day after investors learned the cost of Deutsche Bank’s credit-default swaps rose to their highest level since 2018.
Nonetheless, St. Louis Federal Reserve President James Bullard said the recent drop in Treasuries could help cushion some of the banking sector stress. In other news, February durable goods orders fell 1% due to declining demand for passenger planes and new cars. The 10-year Treasury yield closed unchanged at 3.38%.
The Dow closed nearly 200 points higher on Monday, March 27, as investors embraced news hinting that banking sector woes may be on the mend. An agreement by First Citizens Bancshares (FCNCA) to purchase the deposits and loans of the defunct Silicon Valley Bank helped prop up sentiment for the banking industry. It was generally supportive of the broader market. Treasury yields mostly rose on the day. The two-year Treasury yield climbed 18 bps to close at 3.94%.
U.S. stocks finished slightly lower on Tuesday, March 28, after the United States 2-Year Treasury yield rose above the 4% mark on the day, pressuring technology issues. Investors continued to assess the likelihood of broadening bank contagion while keeping an eye out for signs of stricter monetary policy. The S&P Case-Shiller home prices showed prices falling 0.4% in January but still up 2.5% year over year. U.S. consumer confidence rose to 104.2 in March, beating analyst expectations. The two-year Treasury yield rose eight bps to 4.02%.
On Wednesday, March 29, U.S. stocks ended sharply higher, with all three main U.S. benchmarks finishing up more than 1% on the day, helped by a rally in technology issues as concerns continued to ease about the health of the banking sector. The Nasdaq is on pace to post its strongest quarterly returns since Q2 2020, with a year-date-performance of 13.95% so far. The two- and 10-year Treasury yields rose six and two bps, respectively, to 4.08% and 3.57%.
Exchange-Traded Equity Funds
Equity ETFs experienced net outflows for the second week in three, handing back a little more than $12.6 billion for the most recent fund-flows week—their largest weekly net outflows since December 21, 2022. Authorized participants (APs) were net redeemers of domestic equity ETFs (-$12.2 billion), pulling out money also for the second week in three.
In contrast, nondomestic equity ETFs witnessed their third week of net outflows in four, handing back $395 million this past week. Sector-technology ETFs (+$1.1 billion) observed the largest net inflows of the equity ETF macro-groups for the fund-flows week, followed by equity income ETFs (+$185 million). Meanwhile, large-cap ETFs (-$7.3 billion) suffered the largest net outflows, bettered by small-cap ETFs (-$2.2 billion) and sector-financial/banking ETFs (-$933 million).
First Trust Nasdaq Semiconductor ETF (NASDAQ:FTXL) (+$781 million) and First Trust Consumer Discretionary AlphaDEX® Fund (NYSE:FXD) ( +$770 million) attracted the largest amounts of net new money of all individual equity ETFs. At the other end of the spectrum, SPDR S&P 500 ETF (NYSE:SPY) (SPY, -$3.6 billion) experienced the largest individual net redemptions and Invesco QQQ Trust (NASDAQ:QQQ) 1 ( -$2.8 billion) suffered the second largest net redemptions of the week.
Exchange-Traded Fixed Income Funds
For the sixth consecutive week, taxable fixed-income ETFs witnessed net inflows, taking in $3.9 billion this week. APs were net purchasers of government-Treasury ETFs (+$3.6 billion), corporate investment-grade debt ETFs (+$1.3 billion), and flexible ETFs (+$320 million) while being net redeemers of corporate high-yield ETFs (-$1.7 billion).
Schwab 5-10 Year Corporate Bond ETF (NYSE:SCHI) (SCHI, +$2.0 billion), iShares 20+ Year Treasury Bond (NASDAQ:TLT) ETF (TLT, +$948 million), and iShares 7-10 Year Treasury Bond (NYSE:IEF) ETF (IEF, +$738 million) attracted the largest amounts of net new money of all individual taxable fixed income ETFs. Meanwhile, iShares iBoxx $ High Yield Corporate Bond ETF (HYG, -$975 million) and iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD, -$432 million) handed back the largest individual net redemptions for the week.
For the second week in three, municipal bond ETFs experienced net outflows, handing back $90 million this week. iShares California Muni Bond ETF (CMF, +$29 million) witnessed the largest draw of net new money of the municipal bond ETFs, while iShares National Muni Bond ETF (MUB, -$86 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 sixtieth week in a row—redeeming $7.9 billion—with the macro-group posting a 2.17% market gain for the fund-flows week. Domestic equity funds, suffering net redemptions of slightly less than $6.0 billion, witnessed their thirteenth consecutive week of net outflows while posting a 2.27% market advance on average for the fund-flows week. Nondomestic equity funds—posting a 1.95% weekly market rise on average—observed their sixth week of net outflows in a row, handing back slightly less than $1.9 billion this week.
On the domestic equity side, fund investors were net redeemers of large-cap funds (-$4.2 billion) and equity income funds (-$901 million). Investors on the nondomestic equity side were net redeemers of international equity funds (-$1.5 billion) and global equity funds (-$409 million) for the week.
Conventional Fixed Income Funds
For the sixth week in a row, taxable bond funds (ex-ETFs) witnessed net outflows—handing back $4.9 billion this past week—while posting a 0.05% market gain on average for the fund-flows week. None of the taxable fixed-income fund macro-groups attracted net inflows for the week. Corporate investment-grade debt funds (-$2.1 billion) suffered the largest net redemptions, bettered by flexible funds (-$1.2 billion) and balanced funds (-$607 million).
The municipal bond funds group posted an average 0.46% market gain during the fund-flows week (their fourth weekly market rise in five) and witnessed net outflows for the sixth straight week, handing back $104 million this week. Short Municipal Debt Funds (-$215 million) suffered the largest net outflows of the macro-group, bettered by Intermediate Municipal Debt Funds (-$89 million), while General & Insured Municipal Debt Funds (+$160 million) witnessed the largest weekly net inflows of the macro-group, followed by High Yield Municipal Debt Funds (+$144 million).
Money Market Funds
Given the ongoing banking sector concerns and a continued flight to safety, money market funds (+$61.5 billion) witnessed their seventeenth largest weekly net inflows on record dating back to 1992, taking in net new money for the third consecutive week. Institutional U.S. Government Money Market Funds (+$43.1 billion) took in the largest draw of net new money, followed by Institutional U.S.
Treasury Money Market Funds (+$14.2 billion), U.S. Treasury Money Market Funds (+$7.9 billion), and U.S. Government Money Market Funds (+$1.1 billion). Meanwhile, Institutional Money Market Funds (-$4.2 billion) experienced the largest net redemptions this week, bettered by Money Market Instrument Funds (-$2.7 billion).