Ivan Pantic
During LSEG Lipper’s fund flows week that ended February 14, 2024, investors were overall net redeemers of fund assets (including both conventional funds and ETFs) for the third week in four, removing a net $918 million.
Taxable bond funds (+$9.0 billion, -0.30%), equity funds (+$8.0 billion, +0.50%), and alternatives funds (+$502 million, +0.20%) attracted net new capital.
Money market funds (-$17.5 billion, +0.10%), commodities funds (-$645 million, -2.30%), tax-exempt bond funds (-$142 million, -0.10%), and mixed-assets funds (-$138 million, -0.20%) reported outflows over the week.
Money market funds have seen four weeks of outflows over the last five.
All 10 spot bitcoin ETFs reported net inflows of $2.4 billion, marking the largest weekly inflow since the launch.
Index Performance
At the close of LSEG Lipper’s fund flows week, U.S. broad-based equity indices reported mixed returns-the DJIA (-0.65%) fell, while the Nasdaq (+0.65%), Russell 2000 (+3.17%), and S&P 500 (+0.11%) were all in the black.
Both the Bloomberg Municipal Bond Total Return Index (-0.12%) and Bloomberg U.S. Aggregate Bond Total Return Index (-0.84%) fell over the week.
Overseas indices also traded mixed-DAX (-0.20%), FTSE 100 (-1.44%), Nikkei 225 (+2.53%), S&P/TSX Composite (-1.02%), and Shanghai Composite (+1.27%).
Rates/Yields
Both the two- (+3.27%) and 10-year (+3.65%) Treasury yields rose over the course of the week. Although still inverted, the 10-two yield spread has hovered around negative 0.30 for the trailing 10 days.
According to Freddie Mac, the 30-year fixed-rate average (FRM) increased for the third week in four-the weekly average is currently at 6.77%. The United States Dollar Index (DXY, +0.64%) and VIX (+10.78%) both increased over the course of the week.
The CME FedWatch Tool currently has the likelihood of the Federal Reserve cutting interest rates by 25 basis points (bps) at current levels at 10.50%. This tool forecasted a 76.9% possibility of a 25-bps cut one month ago. The next meeting is scheduled for March 20, 2024.
Market Recap
On Thursday, February 8, the Department of Labor reported weekly jobless claims fell 9,000 to 218,000 while continuing claims decreased to 1.871 million. The Federal Reserve has been very clear in recent remarks that if the labor market and overall economy remain resilient, there will be no rush to lower the central bank’s policy rate. Equity markets closed higher on the day, led by the small-cap-focused Russell 2000 (+1.50%). Treasury yields also saw a small increase with the five- and 10-year yield rising 1.21% and 1.00%, respectively.
The calendar week ended Friday, February 9, the Department of Labor published that December’s consumer price index (CPI) rose slightly less than what was initially reported. Also reported were the annual revisions to the CPI; this showed that core consumer prices increased at an annual rate of 3.3%. The mega cap stocks rose on the news, with Nvidia (NVDA) hitting an intraday record high and the S&P 500 (+0.57%) extending its own record high.
On Monday, February 12, broad-based U.S. equity markets traded mixed-Nasdaq (-0.30%), S&P 500 (-0.09%), DJIA (+0.33%), and Russell 2000 (+1.75%). Treasury yields decreased on the day, with the 10-year falling 0.17%.
On Tuesday, February 13, the Department of Labor reported that CPI increased more than expected in January, driven by the rise in rental housing. The jump in CPI was the largest monthly increase (+0.3%) in four months. On an annual basis, the CPI increased 3.1% after advancing 3.4% the month before-down from June 2022’s peak of 9.1%. Equity markets fell harshly on the news-Russell 2000 (-3.96%), Nasdaq (-1.80%), S&P 500 (-1.37%), and DJIA (-1.35%). The two- and 10-year Treasury yields spiked 3.98% and 3.55%, respectively.
Our fund flows week wrapped up Wednesday, February 14, markets rebounded as the Russell 2000 (+2.44%) recouped most of prior-day losses. Treasury yields also normalized as the two- (-1.63%) and 10-year (-1.23%) yields both fell. The Mortgage Bankers Association (MBA) reported that U.S. mortgage applications fell by 2.3% last week, which comes after a week of seeing a 3.7% rise. The report showed applications to buy a new home fell 3.0%, while refinance applications dropped 2.0%.
Exchange-Traded Equity Funds
Exchange-traded equity funds recorded $10.9 billion in weekly net inflows, marking three weeks of inflows over the last four. The macro-group posted a 0.40% gain on the week, its third in four.
Large-cap ETFs (+$7.2 billion), small-cap ETFs (+$1.2 billion) and equity income ETFs (+$765 million) attracted the top inflows among the equity ETF subgroups. Large-cap ETFs celebrated with their largest weekly inflow of 2024.
Developed global markets ETFs (-$192 million) and sector equity ETFs (-$167 million) suffered the only weekly outflows under equity ETFs. Developed global markets ETFs recorded their first weekly outflow in four.
Over the past fund flows week, the two top equity ETF flow attractors were SPDR S&P 500 ETF Trust (SPY, +$3.8 billion) and SPDR Portfolio S&P 500 ETF (SPLG, +$2.2 billion).
Meanwhile, the two bottom equity ETFs in terms of weekly outflows were Consumer Staples Select Sector SPDR Fund (XLP, -893 million) and iShares Russell 2000 ETF (IWM, -$872 million).
Exchange-Traded Fixed Income Funds
Exchange-traded taxable fixed income funds observed a $7.2 billion weekly inflow-the macro-group’s eighth straight inflow. Fixed income ETFs reported a small negative return of 0.00% on average, its first sixth loss in seven weeks.
Alternative bond funds (+$2.4 billion), general domestic taxable fixed income ETFs (+$2.3 billion), and government & Treasury fixed income ETFs (+$1.5 billion) were the top subgroups under taxable bond ETFs to observe inflows. Alternative bond funds, which includes the bitcoin ETFs, reported its largest weekly inflow on record excluding the week of January 17, 2024, when GBTC converted from over-the-counter to an ETF.
High yield ETFs (-$357 million), emerging market debt ETFs (-$86 million), and world income funds (-$15 million) were the only subgroups to post net outflows. This was the first week in three where high yield ETFs suffered outflows.
Municipal bond ETFs reported a $471 million outflow over the week, marking the fifth outflow over the past seven weeks.
iShares Bitcoin Trust (IBIT, +$1.4 billion) and Fidelity Wise Origin Bitcoin Fund (FBTC, +$788 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, -$631 million) and Grayscale Bitcoin Trust (GBTC, -$412 million) suffered the largest weekly outflows under all taxable fixed income ETFs-this was GBTC’s smallest weekly outflow since converting to an ETF.
Conventional Equity Funds
Conventional equity funds (ex-ETFs) witnessed weekly outflows (-$2.8 billion) for the 105th straight week. Conventional equity funds posted a weekly return of negative 0.60%, the second week of gains in three.
Small-cap funds (+$441 million) and developed international markets funds (+$324 million) were the only conventional equity fund subgroups to realize weekly inflows. Small-cap mutual funds saw their third weekly inflow in the last five weeks. This was also the largest weekly inflow for small-cap conventional mutual funds in more than one year.
Large-cap funds (-$1.3 billion), mid-cap funds (-$1.0 billion), and equity income funds (-$664 million) were the top subgroups to report weekly outflows. Large-cap mutual funds have witnessed 19 weeks of outflows over the last 20.
Conventional Fixed Income Funds
Conventional taxable-fixed income funds realized a weekly inflow of $1.7 billion-marking their seventh consecutive weekly inflow. The macro-group logged a negative 0.50% on average-their sixth sub-zero return in seven weeks.
Short/intermediate investment-grade funds (+$953 million), general domestic taxable fixed income funds (+$468 million), and high yield funds (+$269 million) were the top subgroups to post inflows on the week. Short/intermediate investment-grade mutual funds have observed seven consecutive weekly inflows.
Short/intermediate government & Treasury funds (-$221 million) suffered the only outflows among conventional taxable fixed income subgroups over the trailing week. Short/intermediate government & Treasury mutual funds have seen three weeks of outflows in the last four, while realizing five negative weeks of performance in the last seven.
Municipal bond conventional funds (ex-ETFs) returned a negative 0.10% over the fund flows week, marking the sixth week of negative returns over the last seven. The subgroup experienced a $329 million inflow, marking the seventh consecutive weekly inflow.
Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.
