U.S. Weekly FundFlows Insight Report: Conventional Investment Grade Funds Attract Largest Weekly Inflow Of 2023

During Refinitiv Lipper’s fund-flows week that ended June 7, 2023, investors were overall net purchasers of fund assets (including both conventional funds and ETFs) for the sixth week in seven, adding a net of $22.4 billion.

Money market funds (+$34.1 billion), taxable-bond funds (+$4.0 billion), and tax-exempt bond funds (+$460 million) attracted new capital. Equity funds (-$16.2 billion) was the only macro-group to suffer outflows on the week.

Index Performance

At the close of Refinitiv Lipper’s fund-flows week, U.S. broad-based equity indices reported positive returns—the Russell 2000 (+7.93%), Nasdaq (+1.31%), S&P 500 (+2.10%), and DJIA (+2.30%) were all in the black. This was the small-cap focused Russell 2000’s highest weekly return since the fund-flows week ended May 20, 2020.

The Bloomberg Municipal Bond Total Return Index (+045%) recorded its second straight weekly gain. The Bloomberg U.S. Aggregate Bond Total Return Index (-0.67%) logged its fourth week in the red in five.

Overseas indices traded mostly up—Nikkei 225 (+3.31%), Shanghai Composite (-0.51%), FTSE 100 (+2.95%), and DAX (+2.34%).

Rates/Yields

The 10-two Treasury yield spread remained negative (-0.77), marking the two-hundred-and-forty-second straight trading session with an inverted yield curve. The 10-year Treasury yield rose 4.40% on the week, while the two-year yield increased by 3.61%.

According to Freddie Mac, the 30-year fixed-rate average (FRM) decreased for the first week in four—currently at 6.71%. Both the United States Dollar Index (DXY, -0.22%) and VIX (-32.40%) fell over the course of the week.

Market Recap

Our fund-flows week kicked off on Thursday, June 1, with the U.S. Senate passing a debt ceiling package late in the night. The vote that already went through the U.S. House of Representatives, passed 63-36 in the Senate, and will suspend the debt limit until January 1, 2025. Included in the bill was a cap on non-defense discretionary spending, increased requirements for some social welfare plans, and the allowance of the Mountain Valley natural gas pipeline. The Department of Labor published the weekly unemployment claims which came in at 232,000—an increase of 2,000 from last week. Also released was the S&P Global US manufacturing PMI survey that reported input costs at manufacturers fell for the first time since May 2020. While prices of inputs fell, the report detailed a decrease in new orders “amid muted demand conditions.” Chief Business Economist at S&P Global Market Intelligence, Chris Williamson, said.

“Unless demand picks up, production growth will move into decline seen as it is clearly unsustainable to rely solely on backlogs of orders, which are now being depleted at the fastest rate for three years. Hence companies are cutting back sharply on their input buying and seeking to minimize inventory, tightening their belts for tough times ahead.”

Equity markets finished strong on the day, led by the Nasdaq (+1.28%), while Treasury yields fell across the board.

Friday, June 2, was jobs day. The Bureau of Labor Statistics reported that total nonfarm payroll employment increased by 339,000 in May with the unemployment rate rising 0.3% to 3.7%. The labor force participation rate and employment-population ratio were stable at 62.6% and 60.3%, respectively. The job numbers came in much higher than the forecasted gain of 180,000. A selloff in the Treasury markets led to the 10-year Treasury yield rising 2.50%. Equity-markets soared to close the week—Russell 2000 (+3.56%), DJIA (+2.12%), S&P 500 (+1.45%), and Nasdaq (+1.07%) were all in the black. This was the Russell’s best day since October 4, 2022, and the DJIA’s largest daily gain since January 6, 2023.

On Monday, June 5, the Institute for Supply Management released its May 2023 Services ISM Report on Business. The report showed that economic activity in the services sector expanded in May, marking the fifth consecutive month of expansion. The Securities Exchange Commission has sued cryptocurrency exchange Binance (BNB-USD) for allegedly violating U.S. securities regulations. There was a total of 13 charges filed including deceiving investors about the sufficiency of its systems to detect manipulative trading as well as accusing the platform of taking insufficient steps to prohibit access of U.S. investors. Equity markets started strong on the day but finished in the red—Russell 2000 (-1.32%), DJIA (-0.59%), S&P 500 (-0.20%), and Nasdaq (-0.09%) were all down.

On Tuesday, June 6, just one day after suing Binance, the SEC has sued Coinbase (COIN), another cryptocurrency platform. The SEC is saying that Coinbase has made billions of dollars since at least 2019 by operating as a middleman while evading specific disclosure requirements put in place to protect investors. The SEC also claims that Coinbase has traded at least 13 assets that should have been registered as securities, such as Solana (SOL-USD), Cardano (ADA-USD), and Polygon (MATIC-USD). Equity markets rose again in the U.S. with another strong day by the Russell 2000 (+2.69%).

Our fund-flows week wrapped up Wednesday, June 7, U.S. equity markets traded mixed—Russell 2000 (+1.78%) and DJIA (+0.27%) were up, while the S&P 500 (-0.38%), and Nasdaq (-1.29%) were down for the day. Treasury markets saw yields rise as investors are slowly starting to reconsider whether the Federal Reserve will pause its rate hiking path. The CME FedWatch Tool forecasted a 27.5% chance of a rate hike, up from 20.4% one week ago, and up from 15.5% one month ago. The Bank of Canada surprisingly raised its policy rate by a quarter percent to 4.75% after pausing rate hikes for two straight meetings. Also from Canada, wildfire smoke blanketed the eastern part of the U.S. causing harmful air to force many to remain inside.

Exchange-Traded Equity Funds

Exchange-traded equity funds recorded $8.8 billion in weekly net outflows, marking the first weekly outflow in three and the largest in 10 weeks. The macro-group posted a 2.98% gain on the week, its fifth week in the black over the last six.

International equity ETFs (-$6.6 billion), growth/value-large cap ETFs (-$2.1 billion), and sector-technology (-$1.3 billion) were the largest outflows among equity ETF subgroups. International equity ETFs posted their first weekly gain in four weeks; however, it was their first weekly outflow in nine. This was also the second largest weekly outflow on record for international equity ETFs.

Growth/value-small cap ETFs (+$1.6 billion), sector-other ETFs (+$446 million), and sector-financial/banking ETFs (-$281 million) were the largest inflows under the macro-group. This was only the second weekly inflow in the last six weeks for growth/value-small cap ETFs despite realizing the eighth largest weekly gain (+8.05%).

Over the past fund-flows week, the top two equity ETF flow attractors were iShares Russell 2000 ETF (IWM, +$1.9 billion) and Invesco S&P 500 Equal Weight (RSP, +$1.7 billion).

Meanwhile, the bottom two equity ETFs in terms of weekly outflows were Invesco QQQ Trust 1 (QQQ, -$2.2 billion) and iShares Core MSCI EAFE (IEFA, -$1.9 billion).

Exchange-Traded Fixed Income Funds

Exchange-traded taxable fixed income funds observed a $242 million weekly inflow—the macro-group’s fourth weekly inflow in five. Fixed income ETFs reported a weekly return of negative 0.34% on average, their fourth week in the red in five.

Corporate-high yield ETFs (+$1.7 billion), government-Treasury ETFs (+$1.4 billion), and international & global debt ETFs (+$44 million) were the top taxable fixed income subgroups to post inflows over the week. Corporate-high yield ETFs have realized back-to-back weeks of gains for the first time since the start of April. This subgroup has only attracted new capital in two of the prior six weeks. Government-Treasury ETFs have now logged 15 weeks of inflows in the past 17.

Corporate-investment grade ETFs (-$2.4 billion), flexible funds ETFs (-$405 million), and government-Treasury & mortgage ETFs (-$93 million) were the top taxable fixed income subgroups to witness outflows on the week. Corporate-investment grade ETFs suffered their largest weekly outflow since the week ending September 28, 2022, marking their seventh largest outflow on record and first weekly outflow in five weeks.

Municipal bond ETFs reported a $132 million outflow over the week, marking their third outflow in the last four. The subgroup realized a positive 0.32% gain, marking back-to-back weeks in the black.

iShares iBoxx $ High Yield Corporates (HYG, +$1.4 billion) and iShares 7-10 Treasury Bond ETF (IEF, +$1.1 billion) attracted the largest amounts of weekly net new money for taxable fixed income ETFs.

On the other hand, iShares $ Investment Grade Corporates ETF (LQD, -$1.2 billion) and iShares 1-5 Investment Grade Corporate Bond ETF (IGSB, -$544 million) suffered the largest weekly outflows under all taxable fixed income ETFs.

Conventional Equity Funds

Conventional equity funds (ex-ETFs) witnessed weekly outflows (-$7.3 billion) for the seventieth straight week. Conventional equity funds posted a weekly return of positive 2.94%, the fifth week of gains in six.

Growth/value-large cap (-$4.6 billion), equity income funds (-$727 million), growth/value-aggressive (-$498 million), and international equity (-$385 million) were the largest subgroup outflows under conventional equity funds. Despite five weeks of gains in six, growth/value-large cap funds have suffered 24 consecutive weeks of outflows and logged their largest weekly outflow of the year. The four-week net flow moving average has remained negative for 72 weeks.

There were no conventional equity fund subgroups to report weekly inflows for the second week in three.

Conventional Fixed Income Funds

Conventional taxable-fixed income funds realized a weekly inflow of $3.8 billion—marking their first weekly inflow over the past 16 weeks. The macro-group logged a positive 0.15% on average—their second straight week of gains.

Conventional corporate-investment grade funds (+$2.9 billion), corporate-high yield funds (+$767 million), and corporate-high quality funds (+$200 million) reported the largest weekly outflows under taxable fixed income conventional funds. Corporate-investment grade funds observed their largest weekly intake since the fund-flows week ending July 7, 2021. This was the fifth weekly inflow over the last six weeks.

Conventional flexible funds (-$547 million) and balanced funds (-$82 million) were the only taxable fixed income macro-group to produce outflows. Flexible funds have suffered 13 weeks of outflows in the last 14, despite back-to-back weeks of weekly gains.

Municipal bond conventional funds (ex-ETFs) returned a positive 0.32% over the fund-flows week—their fifth weekly gain in seven. The subgroup experienced $592 million in inflow, marking the first inflow in the past 16 weeks.

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