During LSEG Lipper’s fund-flows week that ended August 16, 2023, investors were overall net purchasers of fund assets (including both conventional funds and ETFs) for the fourth week in five, adding a net $31.3 billion.
Taxable bond funds (-$2.3 billion), equity funds (-$2.0 billion) and tax-exempt bond funds (-$264 million) observed weekly outflows, while money market funds (+$35.8 billion) registered inflows. This was the sixth weekly inflow in seven for money market funds, also marking the largest weekly inflow since the week ending May 24, 2023.
Index Performance
At the close of LSEG Lipper’s fund-flows week, U.S. broad-based equity indices reported negative returns—the Russell 2000 (-3.07%), Nasdaq (-1.80%), S&P 500 (-1.42%), and DJIA (-1.02%) were all in the red. This was the fourth straight week of losses for both the Russell 2000 and Nasdaq.
The Bloomberg Municipal Bond Total Return Index (-0.14%) recorded its third straight sub-zero return. The Bloomberg U.S. Aggregate Bond Total Return Index (-1.57%) logged its third weekly loss in four.
Overseas indices traded down—the Nikkei 225 (-2.79%), FTSE 100 (-2.88%), and DAX (-1.09%), and Shanghai Composite (-4.12%) all traded in negative territory.
Rates/Yields
The 10-two Treasury yield spread has remained negative (currently -0.71) for more than one year. The 10- and 30-year Treasury yields rose over the week (+6.64% and +4.80%, respectively).
According to Freddie Mac (OTC:FMCC), the 30-year fixed-rate average (FRM) rose for the fourth consecutive week—the weekly average is currently at 7.09% which is the highest weekly average since April 5, 2002. Both the United States Dollar Index (DXY, +0.92%) and VIX (+4.89%) rose 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 13.5%, this tool forecasted a 17.5% possibility of the same hike two weeks ago. The next meeting is scheduled for September 20, 2023. The summary indicated that the index for shelter was the largest contributor to the monthly all items increase.
Market Recap
Our fund-flows week kicked off on Thursday, August 10, with the U.S. Bureau of Labor Statistics (BLS) publishing the July Consumer Price Index (CPI) report. The CPI summary showed that over the past year the all-items index rose 3.2%. Core-CPI, excluding food and energy, rose 4.7%. over the last 12-months. Both CPI and core CPI increased 0.2% during the month of July. The Department of Labor (DOL) reported that there was an increase of 21,000 initial jobless claims week over week. The four-week moving average of 231,000 was also an increase from the prior week’s average. The 10-year Treasury yield rose 2.50%, while equity markets traded mixed—DJIA (+0.15%), S&P 500 (+0.03%), Nasdaq (+0.12%), and Russell 2000 (-0.42%).
On Friday, August 11, the BLS released the Producer Price Index (PPI) which showed a 0.3% increase in July and a 0.8% increase over the last 12 months. Core-PPI, less foods, energy, and trade services rose 0.2% last month while advancing 2.7% over the past year—matching June’s 12-month change. Treasury yield rose for the second straight trading session, while equity markets traded mixed once again—Nasdaq (-0.56%), S&P 500 (-0.11%), Russell 2000 (+0.13%), and DJIA (+0.30%).
On Monday, August 14, broad based U.S. equity markets traded mainly positive on the day—Nasdaq (+1.05%), S&P 500 (+0.58%), DJIA (+0.07%), and Russell 2000 (-0.24%). Treasury yields increased, with the two-year (+1.39%) outpacing the 10-year yield (+0.41%) for the first day in three. Overseas, China’s economy has been challenged, credit data that showed low demand from businesses and households in future borrowing paired with Country Garden, a Chinese developer, being on the verge of default, highlights a downward trend in the real estate sector. Country Garden announced over the weekend that the company was suspending trading on at least 10 of its mainland-China traded yuan bonds, after missing coupon payments on two U.S. dollar-denominated bonds.
On Tuesday, August 15, July retail sales beat expectations as they rose 0.7% month over month, and up 3.2% from last year. Total sales for May 2023 through July 2023 were up 2.3% from the same period 12 months ago. Non-store retailers were up 10.3% from last year and food services and drinking places were up 11.9% from July 2022. Investors moved shunned longer-dated Treasuries, as the 10- and 30-year yields rose 0.67% and 0.89%, respectively. The two-(-0.34%) and three-year (-0.13%) yields fell on the day. Equity markets also realized negative daily returns—DJIA (-1.02%), Nasdaq (-0.14%), S&P 500 (-1.16%), and Russell 2000 (-1.29%).
Our fund-flows week wrapped up Wednesday, August 15, with another sell off in both equity and Treasury markets—Russell 2000 (-1.28% was the laggard on the day, while Treasury yields increased across the board. The Federal Open Market Committee (FOMC) also released its latest meeting minutes. One section read,
“With inflation still well above the Committee’s longer-run goal and the labor market remaining tight, most participants continued to see significant upside risks to inflation, which could require further tightening of monetary policy…”
Also on the day, Mortgage Bankers Association reported that mortgage application in the U.S. fell 0.8% over the previous week, marking the fourth straight weekly decline.
Exchange-Traded Equity Funds
Exchange-traded equity funds recorded $2.5 billion in weekly net inflows, marking the seventh weekly inflow in eight. The macro-group posted a 1.95% loss on the week, its third consecutive week in the red.
Growth/value-large cap ETFs (+$3.7 billion), growth/value-small cap ETFs (+$916 million), and equity income ETFs (+$607 million) reported net inflows on the week. Growth/value-large cap ETFs have attracted new capital in three of the last four weeks, despite suffering four straight weeks of sub-zero returns.
Sector-other ETFs (-$1.7 billion), international equity ETFs (-$699 million), and sector-financial/banking ETFs (-$602 million) were the largest outflows under the macro-group. Sector-other ETFs suffered their third consecutive weekly outflow and second-largest weekly outflow on the year.
Over the past fund-flows week, the top two equity ETF flow attractors were iShares: Core S&P 500 (IVV, +$2.1 billion) and SPDR S&P 500 ETF (NYSE:SPY) (SPY, +$1.5 billion).
Meanwhile, the bottom two equity ETFs in terms of weekly outflows were Invesco QQQ Trust 1 (QQQ, -$1.8 billion) and iShares: MSCI Emerging Markets (EEM, -$734 million).
Exchange-Traded Fixed Income Funds
Exchange-traded taxable fixed income funds observed a $2.2 billion weekly outflow—the macro-group’s second weekly outflow in three. Fixed income ETFs reported a weekly return of negative 0.99% on average, their third week in the red over the last four
Corporate-investment grade ETFs (-$1.1 billion), corporate-high yield ETFs (-$1.0 billion), and flexible-funds ETFs (-$434 million) were the top taxable fixed income subgroups to post outflows over the week. Corporate-investment grade ETFs suffered their third consecutive weekly outflow while reporting losses in three of the last four weeks.
Government-Treasury ETFs (+$605 million) and government-Treasury & mortgage ETFs (+$4 million) were the only taxable fixed income subgroups to witness inflows on the week. Government-Treasury ETFs observed their third weekly inflow in four weeks while realizing gains in six of the last 10 weeks.
Municipal bond ETFs reported a $63 million outflow over the week, marking their second outflow over the past three weeks. The subgroup realized a negative 0.11%— its third negative weekly return in as many weeks.
iShares:0-3 Month Treasury Bond ETF (SGOV, +$442 million) and SPDR Bloomberg 1-3 Month T-Bill (BIL, +$403 million) attracted the largest amounts of weekly net new money for taxable fixed income ETFs.
On the other hand, iShares: CORE US Aggregate Bond ETF (AGG, -$773 million) and iShares: iBoxx $Investment Grade Corporates ETF (LQD, -$717 million) suffered the largest weekly outflows under all taxable fixed income ETFs.
Conventional Equity Funds
Conventional equity funds (ex-ETFs) witnessed weekly outflows (-$4.5 billion) for the eightieth straight week. Conventional equity funds posted a weekly return of negative 1.82%, the fourth consecutive week of losses.
Growth/value-large cap (-$2.2 billion), international equity (-$545 million), and growth/value-small cap funds (-$454 million) were the largest subgroup outflows under conventional equity funds. Growth/value-large cap funds have suffered 34 consecutive weeks of outflows while observing a 1.35% loss on average over the last week. The four-week net flow moving average has remained negative for 82 weeks.
Gold and natural resources conventional funds (+$30 million) was the only subgroup to report weekly inflows, marking their second straight week of inflows. The subgroup recorded a loss of 3.20% on the week, their largest weekly loss since the week ending March 15, 2023.
Conventional Fixed Income Funds
Conventional taxable-fixed income funds realized a weekly outflow of $32 million—marking their second weekly outflow in three weeks. The macro-group logged a negative 1.15% on average—their third weekly loss in four.
Conventional flexible funds (-$322 million), government-Treasury (-$198 million) and corporate-high yield (-$81 million) reported the largest weekly outflows under taxable fixed income conventional funds. This was the fifth weekly outflow in the past six weeks for flexible income funds, all the while suffering three straight weekly of negative returns.
Corporate-investment grade (+$564 million), corporate-high quality (+$23 million), international & global debt (+$15 million) were the only taxable fixed income macro-group to produce inflows. Corporate-investment grade conventional funds have witnessed 10 weekly inflows over the last 11 weeks, as they realized a negative 1.14% over the past week.
Municipal bond conventional funds (ex-ETFs) returned a negative 0.18% over the fund-flows week—their fourth consecutive weekly loss. The subgroup experienced a $201 million outflow, marking the seventh weekly outflow in eight.