Lipper Fund Flows: Investors Having Difficulty Judging Q1 Earnings Season

April 27th, 2013 by Tom Roseen

Investors seemed to be hung over for the week ended Wednesday, April 24, after news that included a fake AP tweet about explosions at the White House and bleak economic reports. The S&P 500 index finally put together three straight days of gains, returning 1.75% for the week, but that was after a lousy week (down cumulatively 2.1% by Friday, April 19). In addition, investors are having difficulty judging the first-quarter corporate earnings season, with some of the wild market swings caused by conflicting reports. The funds business (including conventional funds and exchange-traded funds [ETFs]) saw net redemptions of $7.0 billion.  

REUTERS/Ilya Naymushin

REUTERS/Ilya Naymushin

The phony AP tweet on April 23 sent the market down 1% in seconds before the report was proved false and prices rebounded. Sluggish economic news didn’t help. U.S. leading indicators fell in March for the first time in seven months, the Philadelphia manufacturing index decreased to 1.3 in April from 2 the previous month, and new durable goods orders fell 5.7% in March. There were a few positive headlines — new single-family home sales rose 1.5% for March and DuPont and Netflix reported stronger-than-expected earnings.

According to Thomson Reuters Proprietary Research Team, with 148 of the S&P 500 constituents reporting Q1 earnings through April 24, 68% have beaten analyst estimates, but many have missed sales expectations.

For the week ended April 24, against the background of  net redemptions of $7.0 billion, only fixed income funds took in net new money for the week — attracting some $4.8 billion. For the first week in eight, equity funds witnessed net redemptions, handing back $7.3 billion, while money market funds and municipal debt funds witnessed net redemptions of $4.4 billion and $0.1 billion, respectively.

For the fifth week in six, equity ETFs witnessed net outflows, handing back some $8.4 billion (their largest weekly outflows since July 25, 2012), while their conventional mutual fund brethren took in $1.1 billion—for their sixteenth consecutive week of net inflows (bringing their year-to-date total to +$91.8 billion). As might be expected, given the general confusion in the equity market, the largest ETF outflows were seen by SPDR S&P 500 ETF, handing back $2.8 billion, followed by SPDR Gold ETF, losing a little over $1.9 billion, and iShares Russell 2000 ETF, suffering net redemptions of $1.5 billion. ETF investors padded the coffers of PowerShares Senior Loan Fund (+$312 million, its largest inflow since its inception in March 2013) and iShares Barclay 7-10 Treasury Bond Fund (+$196 million).

Excluding ETF activity, investors focused on equity mutual funds, injecting a net $1.1 billion, their lowest weekly net inflows in 16 weeks. But there was a sharp difference between results for domestic and international funds. Domestic equity funds suffered their first weekly outflows in ten weeks, redeeming a net $172 million, while their nondomestic equity fund counterparts took in some $1.2 billion, bringing in net new money for the eighteenth consecutive week. On the domestic side investors appeared to embrace equity income funds, injecting some $1.3 billion into the group; however, this inflow could be partially attributed to an $834-million merger of the Federated Capital Appreciation Funds into the Federated Equity Income Funds.

Investors did, however, once again embrace international equity funds, injecting a net $1.3 billion into this macro-group. Once again, conventional mutual fund investors took on a little more risk in the taxable fixed income funds space (+$3.4 billion net), injecting $1.7 billion into corporate investment-grade debt funds (for their forty-fifth consecutive week of net inflows), of which Bank Loan Funds accounted for $757 million of the flows. The next largest fixed income inflows were found in Flexible Income Funds, which took in $1.1 billion for the week. Despite witnessing their sixth consecutive week of plus-side returns (albeit just +0.01%), municipal debt funds (ex-ETFs) experienced net outflows, handing back some $109 million.

For more information on this week’s fund flows data, please visit Lipper’s U.S. fund flows website or watch the following video: