Change of Heart? Taxable Fixed Income Funds Attract $12.4 Billion so Far in March

by Jack Fischer

During LSEG Lipper’s fund-flows week that ended March 6, 2024, investors were overall net purchasers of fund assets (including both conventional funds and ETFs) for the third week in four, adding a net $27.3 billion.

Money market funds (+$13.1 billion, +0.10%), taxable bond funds (+$12.4 billion, +1.03%), equity funds (+$2.6 billion, +1.21%), tax-exempt bond funds (+$869 million, +0.40%), and alternatives funds (+$108 million, +0.11%) attracted net new capital.

Commodities funds (-$1.0 million, +4.54%) and mixed-assets funds (-$765 million, +1.09 %) reported outflows over the week.

Money market funds reported their second straight weekly inflow.

All 10 spot bitcoin ETFs reported net inflows of $1.9 billion, marking the seventh straight weekly inflow since these launched. On average the group has returned double-digit plus-side returns in three of the last four weeks.

Index Performance

At the close of LSEG Lipper’s fund-flows week, U.S. broad-based equity indices reported mostly positive returns—the (-0.74%) depreciated while the (+0.53%), (+1.36%), and (+0.69%) were in the black.

Both the Bloomberg Municipal Bond Total Return Index (+0.40%) and Bloomberg U.S. Aggregate Bond Total Return Index (+1.08 %) rose over the week.

Overseas indices realized strong positive returns— (+1.34%), (+1.44%), (+3.23%), S&P/TSX Composite (+2.04%), and (+2.77%).

Rates/Yields

Both the (-1.98%) and (-3.75%) Treasury yields fell over the course of the week.

According to Freddie Mac, the fixed-rate average (FRM) decreased for the first week in five—the weekly average is currently at 6.88%. The (DXY, -0.58%) fell, while the (+4.55%) increased over the course of the week.

The CME FedWatch Tool currently has the likelihood of the Federal Reserve cutting interest rates by 25 basis points (bps) at 5.0%. This tool forecasted a 19.0% possibility of a 25-bps cut one month ago. The next meeting is scheduled for March 20, 2024.

Market Recap

On Thursday, February 29, the Department of Commerce reported that consumer spending slowed last month. Personal consumption expenditures increased 0.2%, down from an increase of 0.7% in December.

The PCE price index increased 0.3%, the largest monthly increase since September 2023. Year over year the PCE price index is up 2.4%, while core-PCE is up 2.8%—both annual increases are down slightly from the month before. The National Association of Realtors showed that pending home sales decreased 4.9% in January with monthly contract signings only increasing in the Northeast and West regions. Broad-based U.S. equity markets rose on the day—Nasdaq (+0.90%), Russell 2000 (+0.71%), S&P 500 (+0.52%), and DJIA (+0.12%) were all in the black.

The calendar week ended Friday, March 1, when the Institute for Supply Management (ISM) published a survey showing that customer inventories fell for the third consecutive month. ISM reported its Manufacturing Purchasing Managers Index (PMI), which dropped from 49.1 to 47.8, marking the sixteenth consecutive month of the index being below 50 and signaling manufacturing contraction. Treasury yield fell for the second straight day, led by the short end of the curve. Equity markets surged—the Nasdaq (+1.14%), Russell 2000 (+1.05%), S&P 500 (+0.80%), and DJIA (+0.23%) were all up.

On Monday, March 4, Treasury yields rose all along the curve—2-year (+1.28%), (+1.34%), and (+0.91%) increased on the day. Broad-based equity markets retreated slightly—the Nasdaq (-0.41%), DJIA (-0.25%), S&P 500 (-0.12%), and Russell 2000 (-0.10%) were all down.

On Tuesday, March 5, the ISM reported that its non-manufacturing PMI fell from 53.4 in January to 52.6, below economists’ forecasts. Entertainment and recreation, arts, mining, and real estate, and rental and leasing all reported a contraction. New orders by services businesses increased to its highest level since last August. Both Treasury yields and equity markets fell on the day. The Nasdaq (-1.65%) dropped by its largest percentage amount since early February.

Our fund-flows week wrapped up Wednesday, March 6, with the Department of Labor publishing its Job Openings and Labor Turnover Survey (JOLTS) Report. Openings fell by 26,000, hiring fell by 100,000, and quits fell by 54,000. The hire rate dropped from 3.7% to 3.6% in January. The total number of workers resigning from their jobs fell to 3.385 million, marking the lowest total since January 2021. Equity markets rebounded on the days—the Russell 2000 (+0.70%), Nasdaq (+0.58%), S&P 500 (+0.51%), and DJIA (+0.20%) were all up. Longer-dated Treasury yields dropped with the 10- (-0.70%) and 30-year yields (-0.75%) decreasing the most.

Exchange-Traded Equity Funds

Exchange-traded equity funds recorded $10.7 billion in weekly net inflows, marking three weeks of inflows over the last four. The macro group posted a 1.24% gain on the week, its fifth straight plus-side return.

Large-cap ETFs (+$3.2 billion), sector equity ETFs (+2.6 billion), and developed international markets ETFs attracted the top inflows among the equity ETF subgroups. Large-cap ETFs observed their fifth weekly inflow over the past seven weeks.

Mid-cap ETFs (-$100 million) and developed global markets ETFs (-$14 million) suffered the only weekly outflow under equity ETFs. Mid-cap ETFs observed their first weekly outflow in four weeks.

Over the past fund-flows week, the two top equity ETF flow attractors were iShares Core S&P 500 ETF (NYSE:) (IVV, +$2.3 billion) and iShares Core MSCI EAFE ETF (NYSE:) (IEFA, +$1.3 billion).

Meanwhile, the two bottom equity ETFs in terms of weekly outflows were iShares MSCI USA Minimum Volatility Factor ETF (NYSE:) (USMV, -$548 million) and iShares Russell 2000 ETF (NYSE:) (IWM, -$463 million).

Exchange-Traded Fixed Income Funds

Exchange-traded taxable fixed-income funds observed a $5.8 billion weekly inflow—the macro-group’s eleventh straight inflow. Fixed-income ETFs reported a gain of 1.37% on average, their first back-to-back weeks of positive returns of the year.

General domestic taxable fixed income ETFs (+$3.7 billion), alternative bond ETFs (+$2.3 billion), and government & Treasury fixed income ETFs (+$1.2 billion) were the top subgroups under taxable bond ETFs to observe inflows. General domestic taxable fixed-income ETFs logged nine inflows in the last 11 weeks.

Emerging market debt ETFs (-$741 million), short/intermediate government & Treasury ETFs (-$523 million), and short/intermediate investment-grade ETFs (-$134 million) were the only subgroups to post net outflows. Emerging market debt ETFs have suffered eight weekly outflows in the past 10.

Municipal bond ETFs reported a $118 million inflow over the week, marking the group’s third straight weekly inflow.

iShares Bitcoin Trust (NASDAQ:) (IBIT, +$2.7 billion) and iShares iBoxx $Investment-Grade Corporate Bond ETF (NYSE:) (LQD, +$2.1 billion) attracted the largest amounts of weekly net new money for taxable fixed-income ETFs.

On the other hand, Grayscale Bitcoin Trust (BTC) (NYSE:) (GBTC, -$2.1 billion) and iShares 20+ Year Treasury Bond (NASDAQ:) ETF (TLT, -$967 million) suffered the largest weekly outflows under all taxable fixed-income ETFs.

Conventional Equity Funds

Conventional equity funds (ex-ETFs) witnessed weekly outflows (-$7.0 billion) for the one-hundred-and-eighth straight week. Conventional equity funds posted a weekly return of positive 1.19%, the fifth straight week of gains.

Large-cap funds (-$2.4 billion), multi-cap funds (-$1.4 billion), and mid-cap funds (-$972 million) were the top conventional equity fund subgroups to realize weekly outflows. Large-cap conventional funds have only seen one week of inflows in the last 22.

No conventional mutual fund subgroup posted weekly net inflows.

Conventional Fixed Income Funds

Conventional taxable-fixed income funds realized a weekly inflow of $500 million—marking their tenth consecutive weekly inflow. The macro-group logged a positive 0.80% on average—their second straight plus-side weekly return.

Short/intermediate investment-grade funds (+$4.3 billion), general domestic taxable fixed income funds (+$1.2 billion), and high yield funds (+$401 million) were the top subgroups to post inflows on the week. Short/intermediate investment-grade mutual funds have observed 10 consecutive weekly inflows, as they record their largest weekly inflow since February 2021.

No conventional taxable fixed-income mutual fund subgroup posted weekly net outflows.

Municipal bond conventional funds (ex-ETFs) returned a positive 0.35% over the fund-flows week, marking third consecutive week of gains. The subgroup experienced a $752 million inflow, the ninth weekly intake over the last 10.