Investors Pull $918 Million from Fund Assets
During the week ending February 14, 2024, investors were net redeemers of fund assets, according to data from LSEG Lipper. This marks the third week in the past four that investors have pulled money out of funds, with a total net outflow of $918 million.
Taxable Bond Funds See $9.0 Billion Inflows
Despite the overall net outflow, taxable bond funds attracted net new capital of $9.0 billion during the week. This indicates that investors are still finding value in this asset class.
Equity Funds Garner $8.0 Billion Inflows
Equity funds also saw positive inflows during the period, with a total of $8.0 billion in net new capital. This suggests that investors are optimistic about the prospects of the stock market.
Alternatives Funds Attract $502 Million
Investors have also shown interest in alternatives funds, with a net inflow of $502 million. This indicates a desire for diversification and the pursuit of non-traditional investment strategies.
Money Market Funds Experience Outflows
On the other hand, money market funds reported outflows of $17.5 billion, signaling a shift away from cash-like investments. This trend has persisted for four out of the last five weeks.
Commodities and Tax-Exempt Bond Funds See Outflows
Investors also pulled money out of commodities funds and tax-exempt bond funds. Commodities funds experienced outflows of $645 million, while tax-exempt bond funds saw outflows of $142 million.
Mixed Returns for Equity Indices
At the close of the fund-flows week, U.S. broad-based equity indices reported mixed returns. This suggests that market conditions were uncertain during this period.
Inflows for Spot ETFs
All 10 Spot ETFs reported net inflows of $2.4 billion, the largest weekly inflow since their launch. This indicates strong demand for these particular ETFs.
Rise in Treasury Yields
Both the 10-year and 2-year Treasury yields rose over the course of the week. This suggests that bond market investors are demanding higher yields as a compensation for the risk they are taking.
Positive Outlook for Mortgage Rates
The mortgage fixed-rate average increased for the third week in four, signaling a positive outlook for mortgage rates. This may encourage potential homebuyers to enter the market.
Jobless Claims Decline
The Department of Labor reported that weekly jobless claims fell by 9,000 to 218,000. This indicates a healthier labor market and suggests that the economy is continuing to create jobs.
Consumer Price Index Rises
December's consumer price index (CPI) rose slightly less than initially reported. The annual revisions to the CPI showed that core consumer prices increased at an annual rate of 3.3%. This suggests that inflationary pressures may be moderating.
Inflows for Exchange-Traded Equity Funds
Exchange-traded equity funds saw $10.9 billion in net inflows during the week. Large-cap ETFs attracted the most inflows among the equity ETF subgroups, indicating confidence in these companies.
Inflows for Exchange-Traded Taxable Fixed-Income Funds
Exchange-traded taxable fixed-income funds observed a $7.2 billion weekly inflow. Alternative bond funds, general domestic taxable fixed-income ETFs, and government & Treasury fixed-income ETFs were the top subgroups to observe inflows. This suggests that investors are seeking income-generating investments.
Outflows for Conventional Equity Funds
Conventional equity funds witnessed outflows of $2.8 billion during the week. The only subgroups to experience inflows were small-cap funds and developed international markets funds. This indicates a preference for smaller companies and international exposure.
Inflows for Conventional Taxable-Fixed Income Funds
Conventional taxable-fixed income funds realized a weekly inflow of $1.7 billion. Short/intermediate investment-grade funds, general domestic taxable fixed-income funds, and high-yield funds were the top subgroups to post inflows. This suggests that investors are looking for fixed-income investments across different risk profiles.
Inflows for Municipal Bond Conventional Funds
Municipal bond conventional funds experienced a $329 million inflow during the week. This indicates that investors are still interested in tax-exempt bonds as a way to potentially lower their tax burden.
Analyst comment
Positive news: Taxable bond funds, equity funds, and alternatives funds attracted net new capital. All 10 Spot ETFs reported net inflows of $2.4 billion, marking the largest weekly inflow since the launch. Exchange-traded equity funds recorded $10.9 billion in weekly net inflows. Exchange-traded taxable fixed-income funds observed a $7.2 billion weekly inflow.
Neutral news: U.S. broad-based equity indices reported mixed returns. Overseas indices also traded mixed. Both 10-year and 2-year Treasury yields rose.
Negative news: Money market funds reported outflows of -$17.5 billion. Conventional equity funds witnessed weekly outflows of -$2.8 billion.
As an analyst, the market is likely to see increased activity in taxable bond funds, equity funds, and ETFs. There may be increased volatility in broad-based equity indices and Treasury yields. Money market funds may continue to experience outflows, while conventional equity funds may face further outflows.
