Lipper U.S. Fund Flows: Large Seasonal Outflows
By Tom Roseen During the fund-flows week ended December 16, 2015, investors became somewhat bipolar ahead of the U.S. Federal Reserve’s two-day policy meeting, while oil prices continued to slide to lows not seen since 2009. OPEC’s report showed the cartel’s oil output had risen to its highest level since 2012, perpetuating the global glut in supplies. Also, new applications for U.S. unemployment benefits jumped to their highest levels in five months. At the beginning of the flows week, investors learned of a meltdown in Third Avenue Focused Credit Fund , a high-yield mutual fund; it began blocking investors from making redemptions, weighing heavily on other high-yield offerings as investors began to wonder if the related selloff might extend into other funds in the group. A two-day turnaround in oil prices and anticipation that the Fed would pull the trigger to raise its short-term lending rate in December pushed stocks higher in the middle of the flows week, with many investors believing conditions for a Santa Claus rally were beginning to take shape for the latter half of December. On Wednesday, December 16, investors appeared to shrug off reported weakness in November’s industrial production numbers and another slump in oil prices and cheered the decision by the Fed to raise its key interest rate for the first time in almost ten years. Also, the commitment to a gradual pace of increases over the future was seen as an attempt to ease investors’ worries about the change in ultra-low interest rates, which have been attributed by many to be a catalyst for the recent multi-year equity rally. Despite some late-week optimism, investors were net redeemers of fund assets (including those of conventional funds and exchange-traded funds [ETFs]), withdrawing a net $39.6 billion for the fund-flows week ended December 16. Investors turned their back on equity funds, fixed income funds, and money market funds, redeeming $13.2 billion, $15.4 billion, and $11.3 billion net, respectively, for the week, but they padded the coffers of municipal bond funds (+$0.3 billion) ahead of tax season. (Keep in mind, however, that year-end distributions can play a factor in the weekly flows calculations, if they fall on a Wednesday, along with the impact of tax selling at year-end. So, some of the big swings we witnessed this past week may be offset next week.) For the tenth week in a row equity ETFs witnessed net inflows, taking in $4.1 billion for the week. Despite initial concerns over the FOMC announcement, authorized participants (APs) were net purchasers of domestic equity ETFs (+$2.8 billion), injecting money into the group for a fifth consecutive week. They also padded – for the fourth week running – the coffers of nondomestic equity ETFs (to the tune of +$1.3 billion). As a result of the wild swings in oil prices and conviction about the Fed interest rate hike during the week, APs turned their attention to some out-of-favor issues, with Energy Select Sector SPDR ETF (NYSEARCA: XLE ) (+$1.3 billion), iShares MSCI EAFE ETF (NYSEARCA: EFA ) (+$1.1 billion), and iShares Core S&P 500 ETF (NYSEARCA: IVV ) (+$0.6 billion) attracting the largest amounts of net new money of all individual equity ETFs. At the other end of the spectrum, SPDR S&P 500 ETF (NYSEARCA: SPY ) (-$0.8 billion) experienced the largest net redemptions, while WisdomTree Japan Hedged Equity ETF (NYSEARCA: DXJ ) (-$0.5 billion) suffered the second largest redemptions for the week.