For the second consecutive week, investors were net sellers of fund assets (including conventional funds and ETFs) repurchasing $17.5 billion for the week of Refinitiv Lipper fund flows ending September 7, 2022.
Equity funds (-$12.9 billion) suffered from the the lion’s share of net outflows this week as investors weighed the impact of the Federal Reserve’s firm commitment to fighting inflation by aggressively raising its lending rate – which has been a headwind for stocks – the Europe’s ongoing energy crisis and a new COVID-19 related city-wide lockdown in Chengdu, China.
The 10-year Treasury yield rose 12 basis points (bps) in the week of cash flows, settling at 3.27%, while the two-year yield closed unchanged at 3.45 %. The 10- and 2-year treasury yield spread remained inverted, albeit narrowing to a negative 18 basis points, but still providing signals of recession.
Bearing in mind that there is an inverse relationship between interest rates and bond prices, it’s not too surprising to see the average taxable fixed income fund down 9.41% year-to-date, with the 10-year yield rising 175 basis points so far this year. . As a result, investors redeemed a record $115.7 billion of taxable fixed-income funds through September 7, surpassing all net outflows for the whole year dating back to 1992, when Lipper began tracking weekly net flows.
While inflation fears, rising interest rates, the ongoing war in Ukraine and the lingering effects of COVID-19 have kept investors at bay since the start of the year, investors have remained on the lookout of high-quality, large-cap issues and dividend-paying securities. to offset losses in their fixed income and equity portfolios.
While the average diversified U.S. equity (USDE) fund (including ETFs) is down 16.48% year-to-date, there is a dichotomy between the year-to-date losses recorded by growth-oriented funds and value-oriented funds. For example, the average large-cap growth fund has fallen 25.27% so far this year, while its large-cap value fund counterpart has suffered just an 8.78% decline for the same period.
This makes sense as investors have been punishing 2021’s high-flying tech-focused funds over the past eight months plus the average science and technology fund (-30.57% since the start of the year) and the global fund for science and technology (-35.27% since the beginning of the year) witnessing the largest losses in the universe of equity funds. Investors have sought safety in large-cap companies that pay dividends and have strong balance sheets, low debt and stable sources of income. While mid-cap value funds (-7.27% YTD) and multi-cap value funds (-8.18% YTD) did the best job Mitigating losses from Lipper’s USDE macro classifications, US-focused equity income funds (-8.41%) come third.
Equity income funds are defined as funds that, by prospectus language and portfolio practice, seek relatively high current income and income growth by investing at least 65% of their portfolio in equity securities paying dividends.
While the other three major asset classes – money market funds (-$167.2 billion), taxable bond funds (-$115.7 billion) and municipal bond funds (- $83.9 billion) – suffered net redemptions since the start of the year, equity funds (including ETFs) attracted $40.6 billion net, with only certain macro groups the beneficiaries investors’ assets.
Year-to-date, the main asset attractor for investors is the macro group of large-cap funds, with a net amount of $83.8 billion, followed closely by equity income funds. (+$55.8 billion) and remotely through utility sector funds (+$6.3 billion). billion). Global equity funds (-$25.9 billion) and small-cap funds (-$25.1 billion) were the macro pariahs of the equity universe.
In the large and multi-cap classification space, the Vanguard Total Stock Market Index Fund, Institutional+ Share Class (VSMPXNamewarehoused in Lipper’s Multi-Cap Core Funds classification) attracted the largest year-to-date drawdown of net new funds, with $276.7 billion, followed by Vanguard 500 Index ETF (VOO+$33.3 billion), Fidelity 500 Index Fund (FXAIX+$26.0 billion), and iShares Core S&P 500 ETF (IVV+$18.2 billion), each housed in Lipper’s S&P 500 index fund classification.
On the equity income fund side of the ledger, Schwab US Dividend Equity ETF (SCHD+$9.6 billion) recorded the largest net inflows year-to-date, followed by Vanguard High Dividend Yield Index ETF (VYM+$6.9 billion), iShares Core High Dividend ETF (HDV+$5.0 billion), and T Rowe Price Equity Income Fund, Share Class I (REIPX+$4.4 billion).
Although the average equity fund was only down 0.07% in the last week of fund inflows, investors continued to shelter in place. They bailed out the coffers of quasi-safe-haven macro groups, with equity income funds attracting the only net inflows into the equity fund universe (including ETFs), while government-treasury funds (+ $4.4 billion) and government funds-Treasury and mortgages (+$32 million) absorbed the only amounts of net new money from taxable bond funds.
For the week, the pariahs of the equity asset class were large-cap and international equity funds (including ETFs), returning some $5.8 billion and $2.3 billion, respectively. Meanwhile, on the taxable fixed income side of the equation, high yield corporate funds (-$2.3 billion) and flexible portfolio funds (-$1.1 billion) recorded largest net redemptions.
Editor’s note: The summary bullet points for this article were chosen by the Seeking Alpha editors.