U.S. Weekly FundFlows Insight Report: Conventional Municipal Bond Funds Record Sixth Straight Weekly Inflow

During Refinitiv Lipper’s fund flows week that ended February 13, 2023, investors were overall net purchasers of fund assets (including both conventional funds and ETFs) for the first week in three, adding a net of $5.6 billion.

Money market funds (+$8.7 billion) were the only group to log inflows. Equity funds (-$1.7 billion), taxable bond funds (-$1.3 billion), and tax-exempt bond funds (-$68 million) all reported outflows.

Index Performance

At the close of Refinitiv Lipper’s fund flows week, U.S. broad-based equity indices reported plus-side performance. The Nasdaq (+1.34%) reported its seventh straight week of positive returns, while the DJIA (+0.53%), S&P 500 (+0.72%), and Russell 2000 (+0.95%) also realized gains.

The Bloomberg Municipal Bond Total Return Index (-0.77%) and the Bloomberg U.S. Aggregate Bond Total Return Index (-1.12%) suffered their third week of negative returns over the last four.

Overseas indices traded mostly positive - Shanghai Composite (+0.52%), Dax 30 TR (+0.16%), FTSE 100 (+0.79%), and Nikkei 225 (-2.49%),

Rates/Yields

The 10-two Treasury yield spread remained negative (-0.82), marking the one-hundred-and-sixty-second straight trading session with an inverted yield curve.

According to Freddie Mac, the 30-year fixed-rate average (FRM) increased for the second consecutive week - currently at 6.32%. The United States Dollar Index (DXY, +0.50%) increased, while the VIX (-7.52%) fell over the course of the week.

Market Recap

Our fund flows week kicked off on Thursday, February 9, with equity markets suffering their second straight day of losses - Russell 2000 (-1.40%), Nasdaq (-1.02%), S&P 500 (-0.88%), and DJIA (-0.73%).

The National Association of Realtors (NAR) reported that prices for homes in roughly 90% of U.S. cities increased in the fourth quarter. Only 18% saw double-digit percentage increases, which is significantly lower than the third quarter figure of 46%. Treasury yields rose on the day led by the three-year yield (+1.90%).

The calendar week ended Friday, February 10, with the University of Michigan’s preliminary February Index of Consumer Sentiment (MCSI) showing a more positive economy than many expected.

The MCSI was up 2.3% from last month to 66.4, marking the highest level since January 2022. Interestingly enough, the current economic conditions measure rose 6.1% to its highest level in more than one year (72.6).

Equity markets rebounded from Thursday’s losses, led by the DJIA (+0.50%). Longer-dated Treasury yields fell on the day, the seven-(-0.47%), 10-(-0.64%), and 30-year (-0.89%) Treasury yields declined.

On Monday, February 13, Federal Reserve Board Governor Michelle Bowman said in a meeting that inflation “continues to be much too high,” and that the central bank will need to continue to raise rates to regain pricing control.

She went on to say that even once interest rates reach a restrictive level, “it will need to remain there for some time.” Bowman believes the greater risk is allowing inflation to continue to persist. Equity markets soared to start the calendar week - Nasdaq (+1.48%), Russell 2000 (+1.16%), S&P 500 (+1.14%), and DJIA (+1.11%).

On Tuesday, February 14, the Department of Labor (DoL) released the January Consumer Price Index (CPI). The CPI was up 0.5% from last month and advanced 6.4% over the trailing 12 months, marking the seventh straight drop in the annual figure.

Monthly core-CPI - excluding food and energy - was level at 0.4%, while the year-over-year increase fell from 5.7% to 5.6%, marking the smallest 12-month increase since December 2021.

The index for shelter was the largest attributor to all items increase. U.S. equities traded mixed - Nasdaq (+0.57%), Russell 2000 (-0.06%), S&P 500 (-0.03%), and DJIA (-0.46%). The two-year Treasury yield rose 2.27% on the day.

Our fund flows week wrapped up Wednesday, February 15, with the NAHB/Wells Fargo Housing Market Index (HMI) gaining seven points to 42, marking the largest one-month increase since June 2013.

Gains in the index show that home-building confidence is improving, with many forecasting mortgage rates to continue to fall. The Department of Commerce reported that sales for retail and food services soared by 3% in January after falling by 1.1% in December.

The leading attributor was for purchases at food services and drinking places, which were up 7.2%. Equity markets ended the fund flows week on a strong note, led by the Russell 2000 (+1.09%).

Exchange-Traded Equity Funds

Exchange-traded equity funds recorded $783 million in weekly net inflows, marking the fourth straight week of inflows. The macro group posted a gain of 0.56% on the week.

International equity ETFs (+$1.9 billion), equity income funds ETFs (+$1.1 billion), and sector financial/banking ETFs (+$885 million) were the top subgroups to see inflows over the week.

International equity ETFs have seen eight straight weeks of inflows. Equity income funds ETFs have amassed 33 weeks of inflows in 34. Their four-week flow moving average has remained positive for 125 straight weeks. The subgroup reported an average performance of positive 0.66%.

Growth/value-large cap ETFs (-$1.7 billion), sector energy ETFs (-$921 million), and sector technology ETFs (-$320 million) were the largest outflows under the macro group. Growth/value large cap ETFs realized positive weekly performance (+0.96%) for the third week in four as they posted their fifth weekly outflow in six.

Over the past fund flows week, the top two equity ETF flow attractors were First Trust Financials AlphaDEX ETF (FXO, +$831 million) and JPMorgan Equity Premium Income (JEPI, +$454 million).

Meanwhile, the bottom two equity ETFs in terms of weekly outflows were SPDR S&P 500 ETF (SPY, -$2.8 billion) and iShares MSCI USA Minimum Volatility Factor (USMV, -$846 million).

Exchange-Traded Fixed Income Funds

Exchange-traded fixed income funds observed a net $2.1 billion weekly outflow - the macro group’s second weekly outflow in three. Fixed income ETFs reported a weekly return of negative 0.86% on average.

Corporate high yield ETFs (-$2.5 billion), international & global debt ETFs (-$1.2 billion), and corporate investment grade ETFs (-$483 million) were the top subgroups to observe weekly outflows. Corporate high yield ETFs reported their third weekly outflow in four as they suffered back-to-back weeks of negative performance (-1.22%).

Government Treasury ETFs (+$1.8 billion), government Treasury & Mortgage ETFs (+$136 million), and flexible funds ETFs (+$82 million) logged the top weekly inflows under taxable fixed income subgroups. Despite observing two straight weeks of losses, Government Treasury ETFs logged their first weekly inflow in three weeks.

Municipal bond ETFs reported a $361 million outflow over the week, marking their fourth straight weekly outflow. The subgroup realized a negative 0.62% average, their second straight week of losses.

iShares 10-20 Treasury Bond ETF (TLH, +$765 million) and SPDR Portfolio Short-Term Treasury ETF (SPTS, +$459 million) attracted the largest amounts of weekly net new money for taxable fixed income ETFs.

On the other hand, iShares iBoxx $High Yield Corporate Bond ETF (HYG, -$2.4 billion) and iShares iBoxx $Investment Grade Corporate Bond ETF (LQD, -$1.8 billion) suffered the largest weekly outflows under all taxable fixed income ETFs.

Conventional Equity Funds

Conventional equity funds (ex-ETFs) witnessed weekly outflows (-$2.4 billion) for the fifty-fourth straight week. Conventional equity funds posted a weekly return of positive 0.68%.

Growth/value large cap (-$1.8 billion), equity income (-$509 million), and growth/value aggressive cap (-$385 million) were the largest subgroup outflows under conventional equity funds.

Growth/value large cap funds logged their eighth straight weekly outflow. The subgroup’s four-week flow moving average has remained negative for 56 consecutive weeks.

International equity (+$323 million), growth/value small cap (+$282 million), and sector other (+$96 million) were the top weekly inflows under equity mutual funds. International equity funds have now recorded back-to-back weeks of inflows for the first time in more than one year.

Conventional Fixed Income Funds

Conventional taxable fixed income funds realized a weekly inflow of $789 million - marking their sixth straight weekly inflow. The macro group suffered a negative 0.77% on average - their second consecutive weeks of sub-zero returns.

Conventional corporate investment grade funds (+$1.7 billion), government Treasury & mortgage (+$126 million), and government mortgage funds (+$55 million) led the macro group in inflows.

Corporate investment grade funds recorded their sixth consecutive week of inflows while observing the largest four-week inflow moving average since the fund flow week ending September 15, 2021. The subgroup realized a negative 0.86% on the week, marking the third week of losses in four.

Flexible funds (-$291 million), corporate high yield (-$281 million), and balanced funds (-$258 million) reported the largest weekly outflows under taxable fixed income conventional funds. Flexible funds suffered their second weekly outflow in three weeks, along with their second straight week with returns in the red (-0.26%).

Municipal bond conventional funds (ex-ETFs) returned a negative 0.73% over the fund flows week - their third week of losses in four. The subgroup experienced $293 million in inflows, marking the sixth straight week of inflows. Conventional municipal bond funds only experienced five weeks of inflows in 2022.

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