May 2019 Fund Flow Review

By admin_45 in Blog

Month end means money flow analysis time at DataTrek, where we pause to look at how mutual and exchange traded fund investors have been altering their portfolio exposures. As we have mentioned in past reports, money flow analysis is most useful when viewed across history. For example, over the last few years January 2018 was the peak ($113 billion of total inflows) and December 2018 was a trough ($139 billion of outflows). Going against the herd was a good idea in both cases.

Given May’s volatility, no surprise that money flows were distinctly “meh”; here’s the data:

#1: Through May 23rd (latest Investment Company Institute data), total fund outflows were $5.9 billion. Even if last week’s outflows equaled (or even doubled) that, we’re nowhere near the levels of last December ‘s contrarian Buy signal.

#2: Total equity outflows through the first 3 weeks of May were $15.9 billion, with all of that coming from US stock funds. That’s modestly higher than 2019’s monthly average of $9.0 billion in outflows, but still a long ways away from December’s $57.4 billion in US equity fund redemptions. The one bright spot: fund investors are standing pat on their non-US equity bets for now.

#3: Fixed income flows have slowed from earlier this year, with May’s run rate at +$18.4 billion (extrapolating from the first 3 weeks) versus a 2019 monthly average of $40.0 billion. Still, while May’s bond fund inflows look low they are still better than Q4 2018’s average of $31 billion in outflows.

#4: Looking at just exchange traded money flows, where the data is both more timely and granular, we see a distinct trend to lower risk strategies for equity portfolios:

• Total equity ETF outflows were $16.3 billion in May. One fund – SPY – was 76% of those redemptions ($12.4 billion). Add in the outflows from QQQ (NASDAQ 100) and EEM (MSCI Emerging Markets - $2.4 billion and $2.1 billion, respectively – and you have over 100% of all equity outflows last month.
• Conversely, dividend-focused ETFs pulled in $757 million last month and low-volatility equity ETFs had just over $2 billion of inflows.
• Because momentum and growth factors are still working, money flows here were positive as well: +$134 million and +$934 million, respectively. Value stock ETFs did see $254 million of inflows, but growth funds still hold investors’ interest to a greater degree.

#5: Fixed income ETF money flows show the same derisking as equities:

• Bond ETF inflows totaled $6.3 billion last month. Most of that ($5.5 billion) ended up in AAA sovereign debt funds.
• High yield corporate bond funds had $2.8 billion of outflows, however. About a third ($1.0 billion) shifted to investment grade corporates.
• In terms of maturity, short-term (0-5 year maturity) bond funds took more than half of total inflows with $3.5 billion of fresh capital. Long-term (+10 year) ETFs saw $1.3 billion of inflows.

Our takeaway from all this: as rough as May was for equities and general investor confidence, the money flow data looks more like investors were modifying their risk exposures rather than simply throwing in the towel.Stock fund flows were negative, but nowhere near as bad as December 2018. Lower risk strategies still pulled in fresh money. And bond fund inflows were positive – something that did not happen in Q4 2019.

Bottom line: if you are waiting for markets to feel real pain before increasing risk exposures, the data here shows we are not there yet.

Sources:
Total fund money flows: https://ici.org/research/stats/flows/combined/combined_flows_05_29_19

ETF money flows: www.xtf.com