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Investors were net sellers of fund assets (including those of conventional funds and ETFs) for the second week in three, redeeming a net $11.6 billion for the LSEG Lipper fund flows week ended Wednesday, February 21, 2024.
Fund investors were net purchasers of fixed income funds (+$2.6 billion) and alternatives funds (+$59 million) while being net sellers of commodity funds (-$501 million), mixed-assets funds (-$685 million), equity funds (-$3.5 billion), and money market funds (-$9.6 billion) for the week.
Market Wrap-Up
A hotter-than-expect producer price index report released during the flows week, accompanied by hawkish views from Federal Reserve officials found in the minutes from the Fed’s late January FOMC meeting, weighed on U.S. stock indices.
On the domestic equity side of the equation, the Dow Jones Industrial Average (+0.49%) posted the only plus-side return of the often-followed broad-based U.S. indices, followed by the S&P 500 (-0.38%) and the Russell 2000 (-0.86%). The Nasdaq Composite (-1.75%) suffered the largest decline of the group. Overseas, the Shanghai Composite (+3.04%) moved to the top of the leaderboard of the often-followed broad-based international indices, followed by the DAX Total Return Index (+1.82%) and the FTSE 100 (+1.76%). Meanwhile, the Nikkei 225 (+1.74%) posted the smallest gain of the subgroup for the flows week.
The Morningstar LSTA U.S. Leveraged Loan Index (+0.28%) outperformed the Bloomberg Municipal Bond Index (+0.17%) and the Bloomberg U.S. Aggregate Bond Index (-0.22%) for the fund flows week.
For the flows week, the Treasury yield rose at all maturities of the curve, except for the two-month yield, which experienced a one basis point (BP) decline to end the week at 5.50%. The two-year Treasury yield witnessed the largest increase, rising eight bps to 4.64%. The 10-year Treasury yield rose five bps for the week-settling at 4.32%. The U.S. Treasury yield curve remained inverted, with the two- and 10-year Treasury yield spread (-32 bps) widening by three bps during the week.
On Thursday, February 15, U.S. stocks ended mostly higher after investors learned retail sales dropped 0.8% in January, showing some signs that consumers are being a bit more cautious about their spending habits after a strong holiday season and perhaps because of rising interest rates and other financial obstacles. Countering the slowdown in sales, however, the Department of Labor reported that first-time jobless claims for the week prior declined by 8,000 to 212,000, a one-month low, indicating layoffs remain low nationwide. The 10-year Treasury yield declined three bps on the day to close at 4.24%.
The Nasdaq, S&P 500, and Dow ended lower on the day and the week, snapping a five-week winning streak on Friday, February 16, as investors evaluated inflation readings and corporate earnings reports. The Bureau of Labor Statistics released data that showed the January producer-price index rose 0.3%, its largest increase in five months, surpassing analysts’ expectations of a 0.1% rise. Core wholesale prices, which strips out food and energy sectors, rose an even stronger 0.6% in January, indicating to some that inflation might be stickier than was thought a month ago. On the Q4 earnings front, Applied Materials (AMAT) bucked the downturn after delivering upbeat earnings results and guidance after the closing bell on Thursday. According to our LSEG Proprietary Research team, using LSEG I/B/E/S data, of the 395 constituents in the S&P 500 that have reported Q4 earnings thus far, 80% have beaten analysts’ expectations, that compares to the prior four-quarter average of 76.4%.
The U.S. financial markets were closed on Monday, February 19, in observance of the Presidents’ Day holiday.
U.S. stocks started a holiday-shortened week on a down note on Tuesday, February 20, as investors awaited the earnings report from AI stalwart Nvidia (NVDA), slated to release results after the closing bell on Wednesday, and to glean more clues from Fed officials on interest rates following last week’s rise in CPI and PPI inflation data. In economic news, the U.S. Leading Economic Index declined by 0.4% in January, marking its twenty-second straight decline. However, the silver lining in the data is that six of the 10 components of the index showed positive results. The 10-year Treasury yield declined three bps on the day to 4.27%.
Both the Dow and S&P 500 managed to eke out gains, while the Nasdaq declined on Wednesday, February 21, after investors focused their attention on the Fed’s policy-setting meeting minutes from January 30-31 in which officials saw risks in cutting interest rates too soon. The 10-year Treasury yield rose five bps on the day to close out the fund flows week at 4.32%, its highest closing value since November 30, 2023. Treasuries sold off earlier in the day following a weak $16 billion sale of 20-year notes.
Exchange-Traded Equity Funds
Equity ETFs witnessed net outflows for the second week in three, handing back $1.5 billion for the most recent fund flows week. Authorized participants (APs) were net sellers of domestic equity ETFs (-$2.7 billion), handing back money also for the second week in three, while nondomestic equity ETFs witnessed net inflows for the ninth week in a row, taking in $1.2 billion this past week.
Large-cap ETFs (-$2.0 billion) suffered the largest net outflows of the equity ETF macro-groups for the fund flows week, bettered by sector equity ETFs (-$1.3 billion) and multi-cap ETFs (-$1.1 billion). Meanwhile, small-cap ETFs (+$1.5 billion) observed the largest net inflows, followed by the developed international markets ETFs (+$987 million) and emerging markets equity ETFs (+$413 million) macro-groups.
Exchange-Traded Alternatives, Commodities, and Mixed-Assets Funds
Of the other equity-based macro-classifications, alternatives ETFs (+$368 million) and mixed-assets ETFs (+$20 million) witnessed net inflows, while the commodities ETFs (-$451 million) macro-classification suffered the only net redemption for the week.
iShares Core S&P 500 ETF (IVV, +$2.3 billion), iShares Russell 2000 ETF (IWM, +$819 million), and iShares MSCI Emerging Markets ex China ETF (EMXC, +$409 million) attracted the largest amounts of net new money of all individual equity and equity-based ETFs. At the other end of the spectrum, SPDR S&P 500 ETF Trust (SPY, -$1.6 billion) experienced the largest individual net redemptions and Invesco QQQ Trust Series 1 (QQQ, -$1.6 billion) suffered the second largest net redemptions of the week.
Exchange-Traded Fixed Income Funds
For the ninth consecutive week, taxable fixed income ETFs experienced net inflows, although taking in just $476 million this week. APs were net purchasers of alternative bond ETFs (+$1.3 billion), short/intermediate investment-grade ETFs (+$1.1 billion), and world income ETFs (+$141 million) while being net redeemers of general domestic taxable fixed income ETFs (-$898 million) and government & Treasury fixed income ETFs (-$454 million).
iShares Bitcoin Trust (IBIT, +$899 million, warehoused in Lipper’s Alternative Currency Strategies ETFs classification), iShares Core U.S. Aggregate Bond ETF (AGG, +$543 million), and Schwab 5-10 Year Corporate Bond ETF (SCHI, +$434 million) attracted the largest amounts of net new money of all individual taxable fixed income ETFs. Meanwhile, iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD, -$1.8 billion) and iShares iBoxx $ High Yield Corporate Bond ETF (HYG, -$815 million) handed back the largest individual net redemptions for the week.
Municipal bond ETFs witnessed net inflows for the first week in three, taking in $102.5 million this week. SPDR Nuveen Bloomberg Municipal Bond ETF (TFI, +$47 million) witnessed the largest draw of net new money of the municipal bond ETFs, while VanEck Intermediate Muni ETF (ITM, -$40 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 one hundred-and-sixth week in a row-redeeming $2.0 billion-with the macro-group posting a 0.47% market gain for the fund flows week. Domestic equity funds-suffering net redemptions of slightly less than $1.5 billion-witnessed their one hundred-and-seventh consecutive week of net outflows while posting a 0.01% market rise on average for the fund flows week. Nondomestic equity funds-posting a 1.33% weekly market gain on average-observed their fiftieth week of net outflows in a row, handing back slightly less than $567 million this week.
On the domestic equity side, fund investors were net redeemers of large-cap funds (-$627 million), equity income funds (-$560 million), and mid-cap funds (-$553 million). Investors on the nondomestic equity side were net sellers of developed global markets funds (-$217 million), world sector equity funds (-$189 million), and developed international markets funds (-$153 million) for the week.
Conventional Alternatives, Commodities, and Mixed-Assets Funds
Of the other equity-based macro-classifications, the conventional commodities funds (-$50 million), alternatives funds (-$309 million), and mixed-assets funds (-$705 million, excluding funds of funds) macro-classifications witnessed net redemptions for the week.
Conventional Fixed Income Funds
Taxable bond funds (ex-ETFs) witnessed net inflows for the eighth week in a row, taking in $2.1 billion this past week-while posting a 0.09% market rise on average for the fund flows week. The short/intermediate investment-grade debt funds macro-group witnessed the largest net inflows for the week-taking in $1.2 billion-followed by general domestic taxable fixed income funds (+$421 million) and government & Treasury fixed income funds (+$351 million). World income funds (-$179 million) suffered the largest net redemptions, bettered by emerging markets debt funds (-$57 million) and short/intermediate government & Treasury funds (+$57 million).
The municipal bond funds group posted a 0.20% market gain on average during the fund flows week (their first weekly market gain in three) but witnessed net outflows for the first week in eight, handing back $107 million this week. The High Yield Municipal Debt Funds (+$384 million) and California Municipal Debt Funds (+$16 million) classifications witnessed the largest net inflows of the group. The Intermediate Municipal Debt Funds classification witnessed the largest net outflows of the group-handing back $266 million-bettered by Short Municipal Debt Funds (-$124 million).
Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.
