Investors were overall net purchasers of fund assets (including those of conventional funds and ETFs) for the second week in a row, injecting a net $61.9 billion—the strongest weekly net inflows since May 26, 2021—for Refinitiv Lipper’s fund-flows week ended Oct. 27, 2021. However, the headline numbers continue to be a bit misleading, with short-term assets attracting the lion’s share of net inflows. Fund investors were net purchasers of money market funds (+$42.2 billion), equity funds (+$15.1 billion), taxable bond funds (+$4.2 billion), and tax-exempt fixed income funds (+$397 million) for the week.
Market Wrap-Up
Investors initially shrugged off rising inflationary fears, higher energy costs, and supply-chain disruptions, focusing instead on strong Q3 earnings reports during the fund-flows week. The S&P 500 and Dow Jones Industrial Average indices posted multiple marginal record highs during the flows week, while the NASDAQ was pressured on a few days that saw rising Treasury rates. On the last day of trading, however, a surprise move by the Bank of Canada weighed on the broad-based indices and the 10-year Treasury yield.
On the domestic side of the equation, the NASDAQ Composite Price Only Index (+0.75%) posted the strongest returns of the broadly followed U.S. indices for the fund-flows week. It was followed by the S&P 500 Price Only Index (+0.34%). The Russell 2000 Price Only Index (-1.63%) witnessed the largest declines for the week. Overseas, the Xetra DAX Total Return Index (+0.73%) chalked up the strongest performance of the often-followed broad-based international indices, while the Shanghai Composite Price Only Index (-0.66%) suffered the largest declines.
On Thursday, Oct. 21, 2021, the S&P 500 closed at a record high as investors evaluated the strong beginning to the Q3 earnings season, which according to Refinitiv’s proprietary research team showed that of the 70 or so S&P 500 constituents that reported earnings results thus far, 86% topped analyst expectations.
Investors continued to assess the likelihood of new taxes being passed in order to cover President Joe Biden’s proposed spending bill after a key Democratic senator opposed any increase in tax rates for businesses, the rich, or on capital gains. In other news, the U.S. economy was growing at a strong pace according to the Federal Reserve’s Beige Book, which also highlighted labor shortages and supply-chain bottlenecks—hindrances to growth and possible triggers to higher inflation. The 10-year Treasury yield rose three basis points (bps) to close the day at 1.68%.
The DJIA ended at an all-time high on Friday, Oct. 22, despite hawkish comments by Federal Reserve Chair Jerome Powell and a weaker-than-expected holiday season guidance by Snap (NYSE:SNAP), which pressured large-cap technology stocks for the day. Early in the trading session, Powell said the U.S. labor market might reach full employment next year, which some pundits interpreted as a signal for possible interest rate hikes. Energy prices rose 1.5% for the day, with front-month oil futures settling at $83.76/bbl.
On Monday, Oct. 25, the Dow and S&P 500 ended at record highs on the same day for the first time in two months as investors prepared for the onslaught of Q3 earnings reports. Last week’s earnings calendar showcased more than 150 S&P 500 constituents reporting Q3 corporate earnings. Strong earnings reports helped keep the bullish trend in stocks intact.
The Dow and S&P 500 closed at all-time highs on Tuesday, Oct. 26, after the Conference Board said its October U.S. consumer confidence index climbed to 113.8 from a revised 109.8 in September after suffering three consecutive months of decline. Near-month oil futures rose 1.1% on the day to settle at $84.65/bbl., while the 10-year Treasury yield declined one bp to 1.63%.
Despite strong Q3 earnings reports from the likes of Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOGL), on Wednesday, Oct. 27, the Dow snapped its three-session winning streak after the Bank of Canada announced that it would end its bond buying program, warned of prolonged inflation through 2023, and hinted at the possibility of hiking interest rates as early as Q2 2022. In a possible flight to safety, investors pushed the 10-year Treasury yield down nine bps to close the day at 1.54%. Front-month oil futures pulled back from multiple year highs, closing down 2.4% to $82.66/bbl.
Exchange-Traded Equity Funds
Equity ETFs witnessed their fourth consecutive week of net inflows—taking in $19.5 billion for the most recent fund-flows week—their strongest weekly net inflows since the week ended Feb. 10, 2021. Authorized participants (APs) were net purchasers of domestic equity ETFs (+$19.1 billion), injecting money also for the fourth week in a row.
However, for the eighteenth straight week, nondomestic equity ETFs witnessed net inflows, but attracted just $378 million this past week. Large-cap ETFs (+$16.0 billion) attracted the largest draw of net new money, followed at a distance by equity income ETFs (+$1.2 billion) and sector-other ETFs (+$983 million). Meanwhile, sector-energy ETFs (-$384 million) suffered the largest net redemptions of the equity ETF macro-groups for the flows week.
iShares Core S&P 500 ETF [(NYSE:IVV), +$8.6 billion)]] and SPDR® S&P 500 [(NYSE:SPY), +$3.4 billion)] attracted the largest amounts of net new money of all individual equity ETFs. At the other end of the spectrum, ProShares Ultra S&P500 [(NYSE:SSO), -$776 million)] experienced the largest individual net redemptions, and JPMorgan BetaBuilders Japan ETF [(NYSE:BBJP), -$590 million)] suffered the second largest net redemptions of the week.
Exchange-Traded Fixed Income Funds
For the third week running, taxable fixed income ETFs witnessed net inflows, attracting $3.4 billion this last week. APs were net purchasers of government-Treasury ETFs (+$1.9 billion), corporate high yield ETFs (+$1.1 billion), and international and global debt ETFs (+$880 million) while being net redeemers of corporate investment-grade debt ETFs (-$925 million).
iShares Fallen Angels USD Bond ETF [(NASDAQ:FALN), +$1.2 billion)] and iShares TIPS Bond ETF [(NYSE:TIP), +$805 million)] attracted the largest amounts of net new money of all individual taxable fixed income ETFs. Meanwhile, iShares 1-5 Year Investment Grade Corporate Bond ETF [(NASDAQ:IGSB), -$1.3 billion)] and iShares iBoxx $ Investment Grade Corporate Bond ETF [(NYSE:LQD), -$775 million)] handed back the largest individual net redemptions for the week.
For the 35th week in a row, municipal bond ETFs witnessed net inflows, but taking in just $70 million this week. iShares Short-Term National Muni Bond ETF [(NYSE:SUB), +$32 million)] and SPDR® Nuveen Bloomberg Barclays Municipal Bond ETF [(NYSE:TFI), +$26 million)] witnessed the largest draws of net new money of the municipal bond ETFs in the subgroup for the week.
Conventional Equity Funds
Conventional fund (ex-ETF) investors were net sellers of equity funds for the third week in a row—redeeming $4.4 billion. The macro-group recorded a market loss of 0.39% for the fund-flows week. Domestic equity funds, suffering net redemptions of slightly less than $4.2 billion, witnessed their 18th consecutive week of net outflows while experiencing a 0.34% market decline on average for the fund-flows week. Nondomestic equity funds—posting a 0.51% weekly loss on average—observed their second week of net outflows in three but handed back just $178 million.
On the domestic equity side, fund investors shunned large-cap funds (-$3.3 billion) and equity income funds (-$531 million). Investors on the nondomestic equity side were net purchasers of international equity funds (+$144 million) but were net redeemers of global equity funds (-$321 million) for the week. Rydex Nova Fund, Investor Shares [(RYNVX, +$232 million)] and Invesco Main Street Small Cap Fund, R6 Shares [(OSSIX, +$160 million)] attracted the largest amounts of net new money of all individual equity funds for the week.
Conventional Fixed Income Funds
For the third week in a row, taxable bond funds (ex-ETFs) witnessed net inflows—taking in $793 million this past week—while posting a 0.14% gain on average for the fund-flows week. Investors were net purchasers of flexible funds (+$772 million), government-Treasury funds (+$303 million), and international & global debt funds (+$140 million) while being net redeemers of corporate high-quality funds (-$292 million) and corporate investment-grade debt funds (-$185 million).
Baird Aggregate Bond, Institutional Shares [(BAGIX, +$614 million)] and American Funds Bond Fund of America, Class F3 Shares (BFFAX, +$496 million) took in the largest amounts of net inflows of all individual taxable fixed income funds during the week.
The municipal bond funds group posted a 0.16% loss on average during the week and witnessed its second week of net inflows in three, but attracting just $327 million this week. General & Insured Municipal Debt Funds (+$197 million) experienced the largest net inflows of the group, while Short Municipal Debt Funds (-$87 million) suffered the largest net redemptions.
Federated Hermes (NYSE:FHI) Municipal Ultrashort Fund, Institutional Shares [(FMUSX, +$93 million)] and Bridge Builder Municipal Bond Fund [(BBMUX, +$58 million)] took in the largest draws of net new money of the individual tax-exempt fixed income funds for the week.