In its June 2018 monthly ETF flows report, State Street Global Advisors attributed the flows from equities to bonds as a response to equity market volatility. In a recent commentary, Matthew Bartolini, State Street’s head of SPDR Americas research, blamed uncertainties around trade and ambiguous U.S. policies as the primary drivers of volatility.
According to the ICI report, inflows occurred across fixed-income sectors. Taxable bond funds saw an estimated $4.23 billion in inflows for the week ending July 3, while municipal bond funds had inflows of $356 million.
In Morningstar’s interview, Kinnel notes that many fixed-income investors have sold long duration positions in anticipation of rising interest rates, but these outflows are offset by investments into shorter-duration funds like bank loans and short-term bonds.
“And so, we are seeing the long end of the bond world sell off in anticipation of more rate hikes and possibly more inflation,” said Kinnel. “We have talked about the smooth ride in equities. It's even smoother in fixed income and we have barely noticed any bumps since '08. And so, it hasn't been a disaster, but a lot of bond funds are in the red this year.”
Investors have also accelerated their exit from hybrid and commodity funds. According to the ICI, $2.55 billion flowed out of hybrid funds, which invest in both equities and fixed income, during the week ending July 3, compared with $1.21 billion in the previous week. $2.58 billion flowed out of hybrid mutual funds during the week ending July 3, while hybrid ETFs gained $32 million of inflows.
Commodity funds experience $1 billion in outflows during the week ending July 3, compared with $612 million in outflows during the previous week. ETFs accounted for all of the net outflows in ICI’s report.
While volatility and trade concerns could have some investors seeking shelter, all-told the fund universe has experienced four consecutive weeks of net outflows, according to Lipper, which might also signify a larger cohort of investors exiting their fund positions and decumulating from their accounts to address cash flow needs.
The ICI’s fund flow estimates are based on reporting covering more than 98 percent of mutual fund and ETF assets. Data from the previous weeks reflect revisions because of data adjustments, fund reclassifications and changes in the number of funds reporting.