Despite rising interest rates, investors are pumping new money into fixed income ETFs

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Investors were overall net buyers of fund assets (including those in conventional funds and ETFs) for the first of three weeks, injecting a net $9.2 billion for the week of Refinitiv fund flows Lipper completed on March 23.

Fund investors were net buyers of equity funds (+$11.3 billion) and taxable bond funds (+$2.3 billion) while being net buyers of money market funds (-$2.9 billion) and tax-exempt fixed income funds (-$1.5 billion) for the week .

Market recap

Markets witnessed wild swings during the week in fund flows as investors weighed the implications of aggressive interest rate hikes by the Federal Reserve, Russia continuing to wage war on Ukraine and a weekend peak oil against some improving economic reports.

Despite a sharp one-day market decline on Wednesday, March 23, on the domestic side of the equation, the Nasdaq Composite Price Index (+3.62% for the week, but still down 11.01% since the beginning of the year) posted the strongest returns of the others broadly trailing the US indexes for the week of fund flows, as investors appeared to grab hold of some deeply discounted stocks.

It was followed by the S&P 500 Price Only Index (+2.26% and -6.50%, respectively). The Dow Jones Industrial Average Price Only Index (+0.87% and -5.45%, respectively) posted the weakest weekly return of other US indices for the week.

Overseas, the FTSE 100 Price Only Index (+3.62% and -1.45%, respectively) posted the strongest returns of other widely tracked broad international indices, while the Xetra DAX Total Return (-1.02% and -3.26%, respectively) was the trailing group.

On Thursday, March 17, the DJIA extended its winning streak to its fourth straight day, gaining some 417 points as investors appeared to ignore a 25 basis point (bp) hike in the Fed’s benchmark interest rate la day before.

Investors instead focused on better-than-expected economic reports that showed initial jobless claims the previous week fell 15,000 to 214,000 and U.S. housing starts in February rose. by 6.8%. First-month crude oil prices rose 7.94%, closing the day at $102.98 a barrel (bbl) and the 10-year Treasury yield rose one basis point, closing at 2, 20%.

The Dow Jones had another bullish day, ending its five-week losing streak on Friday, March 18, with the three major U.S. indices posting their biggest one-week gains since November 2020 as investors appeared to be betting on the post-pandemic growth, continued low unemployment rates and hope for a decent second-quarter earnings season, which should begin in the coming weeks.

Investors were weighing hawkish comments from Fed officials, however, after St. Louis Federal Reserve Chairman Jim Bullard called for a 50 basis point hike at the latest FOMC meeting, saying he wanted the key rate to be at 3% by the end of the year.

Oil prices remained higher as first-month crude oil futures rose 1.7%, closing at $104.70 a barrel, but still posted a 4-week decline, 2% Friday. The 10-year Treasury yield fell six basis points to 2.14% as investors temporarily moved away from safe-haven assets.

The DJIA fell 200 points on Monday, March 21, after Federal Reserve Chairman Jerome Powell stressed the need to tighten monetary policy at a rapid pace during an interview with the National Association for Business. Economics. Powell said,

“If we conclude that it is appropriate to act more aggressively by raising the federal funds rate by more than 25 basis points at a meeting, we will do so.”

The 10-year Treasury yield jumped 18 basis points on the day to close at 2.32% – the highest closing value since May 24, 2019. rose 7.1% to $112.12/bbl.

All three major U.S. indexes rose on Tuesday, March 22, despite hawkish comments from Bullard, Powell and other Fed officials in their bid to tackle inflation – which is currently at its highest level in 40 years – as investors hope for a soft landing. The 10-year Treasury yield jumped six basis points to 2.38% as inflation remained a significant concern.

The Dow Jones suffered its worst daily decline in two weeks as oil prices surged, new home sales fell and more Fed officials warned of aggressive interest rate hikes to combat rising inflation.

First-month crude oil futures rose 2.8% to $114.93/barrel and the Census Bureau reported February U.S. new home sales fell 2% to a annual rate of 772,000. However, the 10-year Treasury yield fell six basis points to close the day at 2.32%

Exchange Traded Equity Funds

Equity ETFs had their seventh consecutive week of net inflows, attracting $12.8 billion for the most recent week of fund inflows. Authorized Participants (APs) were net buyers of domestic equity ETFs (+$11.4 billion), also pumping money for the seventh week in a row, while for the first week in three, Non-domestic equity ETFs saw net inflows, registering $1.4 billion in the past week.

Large-cap ETFs (+$5.4 billion) attracted the most new money, followed by commodity-heavy ETFs (+$2.4 billion) and international equity ETFs (+ $1.3 billion). Meanwhile, ETFs in the energy sector (-$422 million) suffered the largest net redemptions among equity ETF macro groups for the week of flows.

the SPDR S&P 500 ETF (TO SPY+$3.8 billion) and the Invesco QQQ Trust ETF 1 (QQQ+$2.9 billion) attracted the largest amounts of net new funds of any individual equity ETF.

At the other end of the spectrum, the Invesco S&P 500 Equal Weight ETF (RER-$1.5 billion) had the largest individual net redemptions and the iShares Core S&P 500 ETF (IVV-$939 million) suffered the second largest net redemptions of the week.

Fixed Income Exchange Traded Funds

For the fifth week in a row, taxable fixed-income ETFs saw net inflows, registering $5.2 billion last week. APs were net buyers of Treasury ETFs (+$3.3 billion), investment grade debt ETFs (+$1.9 billion) and flexible ETFs (+$1.1 billion) , while being net redeemers of high-yield ETFs (-$1.9 billion) .

the iShares 20+ Year Treasury Bond ETF (TLT, +$2.6 billion) and the iShares Short Treasury Bond ETF (VHS+$564 million) attracted the largest amounts of new money of any individual taxable fixed income ETF.

During this time, the iShares iBoxx $ High Yield Corporate Bond ETF (HYG-776 million dollars) and the SPDR Bloomberg High Yield Bond ETF (JNK-$631 million) returned the biggest individual net redemptions of the week.

For the third week in a row, municipal bond ETFs saw net inflows, with investors pumping in $127 million this week. the VanEck High Yield Muni ETF (HYD+$38 million) witnessed the largest drawdown of net new funds from municipal bond ETFs, while the PIMCO Active Intermediate Municipal Bond ETF (MUNI-$27 million) had the largest net buybacks in the subgroup for the week.

Conventional Equity Funds

Conventional fund (ex-ETF) investors were net sellers of equity funds for the seventh consecutive week – buying back $1.5 billion – with the macro group posting a market gain of 2.01% for the week of fund flow.

Domestic equity funds, suffering net redemptions of just under $966 million, saw their seventh consecutive week of net outflows while posting a market gain of 2.05% on average for the week of flows of funds.

Non-domestic equity funds – posting a weekly gain of 1.92% on average – saw their fourth consecutive week of net outflows, returning $582 million this week.

On the domestic equity side, fund investors were net buyers of large-cap funds (+$493 billion), while being net buyers of real estate funds (-$424 million). Investors on the non-domestic equity side were net buyers of international equity funds (-$279 billion) and global equity funds (-$303 million) for the week.

Conventional Fixed Income Funds

For the ninth week in a row, taxable bond funds (ex-ETFs) saw net outflows – bringing in $2.8 billion last week – while posting a 0.30% gain on average for the week of flows. funds.

Investors were net buyers of flexible funds (+$387m) and Treasury funds (+$159m) while being net buyrs of investment grade debt funds (-$1.7bn) ), high yield corporate funds (-$827 million), and government mortgage funds (-$352 million).

The group of municipal bond funds posted an average loss of 0.50% over the week and had its eleventh consecutive weekly net outflows, returning $1.6 billion this week and marking its longest period of weekly net outflows since the week ended December 19, 2018.

General and insured municipal loan funds (-$470 million) and intermediate municipal loan funds (-$405 million) had the largest net outflows of the group.

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Editor’s note: The summary bullet points for this article were chosen by the Seeking Alpha editors.

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