Lipper U.S. Weekly FundFlows Insight Report: Coronavirus Takes Down the Equity Markets and Equity Funds

Lipper’s fund asset groups (including both mutual funds and exchange-traded funds) saw $20.0 billion leave their coffers for the fund-flows trading week ended Wednesday, February 26. Equity funds (-$22.1 billion) were responsible for the lion’s share of the net outflows, while money market funds also chipped in $2.6 billion to the total net negative flows. On the plus side of the ledger, investors sought out taxable bond funds (+$2.5 billion) and municipal bond funds (+$2.3 billion).

Market Overview

The major equity indices all approached correction territory as the growing threat of the coronavirus gripped the market. The NASDAQ Composite Index, S&P 500 Index, and the Dow Jones Industrial Average were off 8.52%, 8.15%, and 7.97%, respectively, for the fund-flows trading week as global pandemic fears took hold. The number of coronavirus cases surged around the globe and U.S. officials began to contemplate if the country was adequately prepared to properly combat the illness when it reaches our shores in higher numbers. The virus has already slowed down global economic growth and speculation grew this week that this negative economic impact could be enough to push the U.S. into a recession. Former Federal Reserve Chairwoman Janet Yellen stated that a recession with the virus as its root cause was a distinct possibility for the U.S. while speaking at a Brookings Institution event this week. As one would expect, with recession talk in the air there were also rumblings on the street that the Fed should respond with interest rate cuts in the near future.

ETFs

ETFs had overall net outflows of $18.8 billion, of which equity ETFs were responsible for $17.8 billion. This net negative flow was the fifth largest in equity ETF history (Lipper began tracking this data in 1996) and its largest since the $22.0 billion net outflow for the August 7, 2019, fund-flows trading week. Not surprisingly, considering the downturn in the U.S. equity markets, the largest net outflow (by far) this week belonged to SPDR S&P 500 ETF (SPY), which had $14.5 billion leave. Also tied into the news for the week were the second and third largest net negative flows, as iShares MSCI Emerging Markets ETF (EEM) and iShares MSCI Japan ETF (EWJ) had net outflows of $1.1 billion and $790 million, respectively. iShares MSCI Emerging Markets ETF has roughly 50% of its assets allocated to China region stocks while Japan has also been heavily impacted by the coronavirus. Taxable bond ETFs also saw money leave this week (-$1.5 billion) while municipal bond ETFs took in $523 million in net new money. The largest individual net inflows among muni bond ETFs belonged to iShares National Municipal Bond ETF (MUB) at $269 million.

Equity Mutual Funds

The equity mutual fund group shed assets (-$4.3 billion) for the ninth consecutive week. Domestic equity funds (-$4.4 billion) accounted for all of these net outflows while nondomestic equity funds had net inflows of $81 million. Among the peer groups, on the domestic side Multi-Cap Growth Funds (-$1.5 billion) had the largest net outflows, while the largest net inflows for the non-domestic peer groups belonged to International Multi-Cap Growth Funds (+$256 million).

Fixed Income Mutual Funds

Municipal debt funds (+$1.7 billion) ran their streak of consecutive net inflows to sixty weeks, while taxable bond funds (+$4.0 billion) grew their own streak of net positive flows to eight. On the taxable bond fund side, the net inflows were paced by the Core Plus Bond Funds (+$1.6 billion) and Core Bond Funds (+$1.2 billion) peer groups. The tax-exempt peer groups were led by High Yield Muni Debt Funds (+$538 million) and General Muni Debt Funds (+$525 million).

Money Market Mutual Funds

Money market funds had net outflows of $2.6 billion for the week. The Institutional Money Market Funds (-$6.6 billion) peer group dominated the net outflows among the group. The majority of money market fund peer groups actually took in net new money last week, led by Institutional U.S. Treasury Money Market Funds (+$2.8 billion) and Institutional U.S. Government Money Market Funds (+$1.7 billion).