During LSEG Lipper’s fund-flows week that ended July 5, 2023, investors were overall net purchasers of fund assets (including both conventional funds and ETFs) for the first week in three, pumping in a net of $22.8 billion.
Tax-exempt bond funds (+$856 million) observed weekly outflows, while money market funds (+$15.6 billion), equity funds (+$6.2 billion), and taxable-bond funds (+$2.0 billion) registered inflows on the week.
Index Performance
At the close of LSEG Lipper’s fund-flows week, U.S. broad-based equity indices reported positive returns—the Russell 2000 (+0.76%), Nasdaq (+1.47%), S&P 500 (+1.60%), and DJIA (+1.29%) were all in the red. For the DJIA, Nasdaq, and S&P 500, this was the first positive return over the last three weeks.
The Bloomberg Municipal Bond Total Return Index (-0.13%) recorded its first weekly loss in five. The Bloomberg U.S. Aggregate Bond Total Return Index (-1.09%) logged its first negative weekly return in four.
Overseas indices traded mixed—Nikkei 225 (+0.48%), Shanghai Composite (+1.07%), FTSE 100 (+0.06%), and DAX (-0.31%).
Rates/Yields
The 10-two Treasury yield spread has remained negative (-1.00) for more than one year despite the 10-year yield rising 5.93% on the week.
According to Freddie Mac (OTC:FMCC), the 30-year fixed-rate average (FRM) increased for the second straight week—currently at 6.81%. Both the United States Dollar Index (DXY, +0.45%) and VIX (+5.29%) rose over the course of the week.
Market Recap
Our fund-flows week kicked off on June 29, with the Bureau of Economic Analysis reporting that real gross domestic product (GDP) increased at an annual rate of 2.0% in the first quarter of 2023. While this marks the third straight quarter of positive GDP growth, quarterly growth decelerated from Q4 2022. The personal consumption expenditures (PCE) price index was revised downward from 0.1% to positive 4.1%. Initial jobless claims came in at 239,000 below the forecasts of 266,000. Pending home sales, published by the National Association of Realtors, dropped 2.7% in May from the prior month, and by 22.2% from last year. Equity markets increased on the day, led by the Russell 2000 (+1.23%). The Treasury market saw selloffs, with the 10-year Treasury yield rising 3.61%.
Friday, June 30, the European Central Bank hosted its annual retreat where the heads of the U.S., U.K., and Japan central banks met to discuss their policy outlook. ECB President Christine Lagarde said, “We still have ground to cover…we will very likely hike again in July.” The Bank for International Settlements recently warned that the final stretch of monetary tightening may be the toughest on the economy. Equity markets finished the first half strong—S&P 500 (+1.23%), Nasdaq (+1.45%), Russell 2000 (+0.38%), and DJIA (+0.84%). Treasury markets saw little movement on the short-end while longer-dated yields fell—30-year Treasury yield (-1.69%).
On Monday, July 3, factory output fell drastically according to S&P Global (NYSE:SPGI) PMI, declining at one of the fastest rates in the last 13 years. The report noted that companies are saying customers are increasingly hesitant to spend as the cost of living, interest rates, and concerns of an oncoming recession all rise. The fall in June marks the second consecutive monthly decline—the seasonally adjusted S&P Global US Manufacturing Purchasing Managers’ Index level was 46.3 in June, down from 48.4 in May. Treasury yields rose on the day, led by the three-year yield (+1.80%). Domestic broad-based equity markets traded slightly up—Russell 2000 (+0.43%), Nasdaq (+0.21%), S&P 500 (+0.12%), and DJIA (+0.03%).
On Tuesday, July 4, markets were closed while the U.S. observed Independence Day.
Our fund-flows week wrapped up Wednesday, July 5, with the release of the June Federal Open Market Committee (FOMC) meeting minutes. While the minutes cited surprisingly strong economic activity, still-tight labor market, and persistent inflation, “almost all participants judged it appropriate to maintain the target range at 5.00%-5.25%.” Overseas, Sweden’s bid to join NATO stalled again despite U.S. support. Both Turkey and Hungary have objected to the move. Equity markets fell on the day for the first session in three—Russell 2000 (-1.26%), DJIA (-0.38%), Nasdaq (-0.18%), and S&P 500 (-0.20%).
Exchange-Traded Equity Funds
Exchange-traded equity funds recorded $13.3 billion in weekly net inflows, marking the second straight weekly inflow. The macro-group posted a 1.32% gain on the week, its first week in the black over the last three.
Growth/value-large cap ETFs (+$11.0 billion), growth/value-small cap ETFs ($794 million), and equity income funds ETFs ($588 million) were the largest inflows among equity ETF subgroups. Growth/value-large cap ETFs have reported inflows in three of the last four weeks while seeing positive returns in back-to-back weeks.
Sector-financial/banking ETFs (-$259 million), gold and natural resources ETFs (-$175 million), and sector-utilities ETFs (-$158 million) were the largest outflows under the macro-group. Despite logging their first weekly gain in four weeks, sector-financial/banking ETFs suffered their first outflow in five weeks.
Over the past fund-flows week, the top two equity ETF flow attractors were SPDR S&P 500 ETF (NYSE:SPY) (SPY, +$5.1 billion) and Invesco QQQ Trust 1 (QQQ, +$2.8 billion).
Meanwhile, the bottom two equity ETFs in terms of weekly outflows were SPDR GOLD (GLD (NYSE:GLD), -$534 million) and iShares: MSCI Taiwan ETF (EWT, -$398 million).
Exchange-Traded Fixed Income Funds
Exchange-traded taxable fixed income funds observed a $336 million weekly inflow—the macro-group’s fifth weekly inflow in six. Fixed income ETFs reported a weekly return of negative 0.64% on average, their first week in the red in three.
Corporate-investment grade ETFs (+$564 million), flexible funds ETFs (+$86 million), and international & global debt ETFs (+$48 million) were the top taxable fixed income subgroups to post inflows over the week. Corporate-investment grade ETFs have logged eight weeks of inflows over the last nine while realizing their first weekly loss in four.
Government-Treasury ETFs (-$286 million), corporate-high yield ETFs (-$86 million), and government-mortgage ETFs (-$5 million) were the top taxable fixed income subgroups to witness outflows on the week. Government-Treasury ETFs have now posted consecutive weekly outflows for the first time since early February.
Municipal bond ETFs reported a $201 million outflow over the week, marking their first outflow in three weeks. The subgroup realized a negative 0.13%, marking the first sub-zero return in six weeks.
iShares: iBoxx $Investment Grade Corporates (LQD, +$459 million) and iShares: 20+ Treasury Bond ETF (TLT, +$269 million) attracted the largest amounts of weekly net new money for taxable fixed income ETFs.
On the other hand, SPDR Bloomberg 1-3 Months T-Bill (BIL, -$642 million) and iShares: iBoxx $High Yield Corporates (HYG, -$342 million) suffered the largest weekly outflows under all taxable fixed income ETFs.
Conventional Equity Funds
Conventional equity funds (ex-ETFs) witnessed weekly outflows (-$7.1 billion) for the seventy-fourth straight week. Conventional equity funds posted a weekly return of positive 1.06%, the first week of gains in three.
Growth/value-large cap (-$4.3 billion), international equity funds (-$940 million), and growth/value-small cap funds (-$670 million) were the largest subgroup outflows under conventional equity funds. Growth/value-large cap funds have suffered 28 consecutive weeks of outflows while observing a 1.41% gain on average. The four-week net flow moving average has remained negative for 76 weeks.
Sector-technology conventional funds (+$16 million) was the only subgroup to report weekly inflows. This was the third week of inflows over the past four.
Conventional Fixed Income Funds
Conventional taxable-fixed income funds realized a weekly inflow of $1.6 billion—marking their first weekly outflow over the past three weeks. The macro-group logged a negative 0.22% on average—their first week of losses in six.
Conventional corporate-investment grade funds (+$1.1 billion), flexible funds (+$677 million), and government-Treasury & mortgage funds (+$254 million) reported the largest weekly outflows under taxable fixed income conventional funds. This was the fifth straight weekly inflow for conventional corporate-investment grade funds. The subgroup posted a negative 0.52% on average during the week.
Conventional corporate-high yield funds (-$197 million), balanced funds (-$155 million), and international & global debt funds (-$49 million) were the top taxable fixed income macro-group to produce outflows. Corporate-high yield funds witness their first weekly outflow in five weeks despite the average gain of 0.52% from the subgroup.
Municipal bond conventional funds (ex-ETFs) returned a positive 0.02% over the fund-flows week—their fifth weekly gain in six. The subgroup experienced a $655 million outflow, marking the third weekly outflow in four.