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Lipper U.S. Fund Flows: Net Outflows For Money Market Funds During Wild Week Of Trading

Lipper’s fund macro-groups (including both mutual funds and exchange-traded funds [ETFs]) had aggregate net outflows of $7.0 billion for the fund-flows week ended Wednesday, September 2. This activity represented the second consecutive week of overall negative net flows; investors took out $5.5 billion the previous week. Money market funds (-$10.3 billion) posted the largest net outflows among the macro-groups, bettered by municipal bond funds (-$586 million) and taxable bond funds (-$40 million). Equity funds, with net inflows of $3.9 billion, were the only group on the positive side of the ledger for the week. By Patrick Keon In what was a wild week of trading, the Dow Jones Industrial Average (+65.87 points) and the S&P 500 Index (+8.35 points) each managed to register gains of 0.4% for the week. Market activity for the week was bracketed by two days of superior results; the Dow and the S&P posted combined gains of over 4% on both the first and last trading days of the week. That was enough to offset the approximately 3% loss both indices suffered on Tuesday, September 1. Tuesday’s sell-off, which represented the third worst performance of the year for U.S. stocks, was triggered by continued fears about the economic situation in China. Additional poor economic data from China (its manufacturing purchasing managers index fell to a three-year low) again raised concerns that the world’s second largest economy was headed toward an extended slowdown. The U.S. markets rallied on the first and last trading days of the week on a combination of factors: strong U.S. economic data, rising oil prices, and China’s taking steps to calm its volatile market. U.S. second quarter GDP was revised sharply upward (to 3.7% from 2.3%), which gave rise to speculation the Federal Reserve could still impose an initial interest rate hike in September, despite the turmoil in China. Oil prices bounced during the week after an extended downturn left them at six-year lows. News of decreasing oil reserves was the cause for the rally, which saw the U.S. and global oil benchmarks (West Texas Intermediate Crude and Brent Crude) both appreciate more than 20% from their respective recent lows. Despite Tuesday’s activity, China’s moves to stabilize its market did have a positive impact around the globe. The U.S. market was buoyed at the start of the week by news that China planned to put in controls to limit the yuan’s weakening versus the dollar. The markets also closed the week strengthened by additional measures from China, which stated it would tighten trading rules on stock index futures and foreign exchange derivatives in an effort to solidify its market. The net outflows for the week from money market funds (-$10.3 billion) was only the third time during the third quarter the group had suffered losses. The positive flows performance this quarter has reduced the year-to-date net outflows for money market funds to approximately $40 billion. Institutional Treasury money market funds were responsible for the lion’s share of the week’s net outflows; $12.1 billion net left their coffers. For equity funds, ETFs accounted for all the net inflows (+$4.8 billion) for the week, while mutual funds saw net outflows of $865 million. The ETF activity was dominated by SPDR S&P 500 ETF Trust (NYSEARCA: SPY ), which took in over $7.2 billion of net new money. For mutual funds-in a continuation of this year’s trend-nondomestic equity funds (+$746 million) experienced positive net flows, while domestic equity funds (-$1.6 billion) saw money leave. It was a tale of two cities for taxable bond funds: ETFs took in $4.3 billion of net new money, while mutual funds experienced net outflows of $4.4 billion. The outflows were widespread on the mutual funds side, but Lipper’s High Yield Funds (-$714 million) and Loan Participation Funds (-$451 million) classifications were hit the hardest. The biggest contributors to the positive flows for ETFs were SPDR Barclays 1-3 Month T-Bill ETF ( BIL , +$845 million), iShares 1-3 Year Treasury Bond ETF ( SHY , +$698 million), and iShares 7-10 Year Treasury Bond ETF ( IEF , +$573 million). The $545 million of net outflows for municipal bond mutual funds marked their sixth straight week of outflows. Funds in Lipper’s national municipal bond fund classifications were responsible for $460 million of the outflows. Share this article with a colleague

Rate Hike Fears Rise, Time For Taper ETF?

The moment the China-induced stock market gyrations cooled a bit, the U.S. market started gaining ground. Meanwhile, the U.S. economy grew at 3.7% in Q2, which breezed past the initial reading of 2.3% growth and 0.6% expansion recorded in the seasonally weak Q1. Other data points including housing and job came on the stronger side at the home front. As a result, the bet on a September timeline of the Fed lift-off – which took a backseat in mid-August as global market rout took an upper hand – is back on the table on now. If this was not enough, Stanley Fischer who happens to be the Fed’s vice-Chairman flared up the rising rate worries even more. So, inflation was the main hindrance en route to Fed policy tightening as inflation is short of the Fed’s longer-term target on extremely muted energy prices. Also, the emerging Chinese market volatility prompted some to hope for a later-than-expected hike in rates. But, the Fed’s vice chairman expects inflation to inch up eventually. So waiting for a 2% inflation goal could be a pricey option. Though he added “we’ve got time to wait and see the incoming data and see what is going on now in the economy” before deciding on hiking rates, the jittery nerves ignited the rate hike bet all over again. There will be a set of data to be released and looked at before this historic decision is taken after nine long years, but the September lift-off timeline is now a possible option. This sent the yield on 10-year Treasury note to 2.20% (on September 2, 2015) from 2.01% recorded on August 24. In such a situation, the U.S. market will likely see a slump in the bond bull market next year and investors can make the most of it by shorting treasuries. Though the inverse U.S. Treasury space has only a handful of products, Barclays Inverse US Treasury Aggregate ETN (NASDAQ: TAPR ) could be an intriguing play for investors already preparing for the impending rate hike. TAPR in Focus The note provides investors a unique strategy to hedge against or benefit from the rising U.S. dollar interest rates by tracking the Barclays Inverse US Treasury Futures Aggregate Index. This benchmark employs a strategy, which follows the sum of the returns of the periodically rebalanced short positions in equal face values of each of the 2-year, 5-year, 10-year, long-bond and ultra-long U.S. Treasury futures contracts. If the price of each Treasury futures contract increases or decreases by 1% of its face value, the value of the index would decrease or increase by 5% over the same period. The ETN has about $22 million in net assets. It charges 43 bps in annual fees and trades in a light volume of about 5,000 shares per day on average, ensuring additional cost in the form of a wide bid/ask spread. The note added about 5.3% in last one month (as of September 2, 2015) thanks to the ascent of the benchmark treasury yield. Bottom Line TAPR offers investors positions against all five tenures on the U.S. Treasury futures curve and provides an interesting hedging strategy between short-term, intermediate-term and the long-term bonds. Investors should note that short-term bonds are less interest-rate sensitive and low yield in nature while long-term bonds act differently. Thus, focus on every part of the yield curve makes this product worthwhile. Original Post

6 ETFs To Watch In September

After a worldwide brutal stretch in August, the investing cohort must be keenly following the market movement in September. In any case, September is a seasonally cursed month having underperformed historically especially when it comes to stocks. According to the Stock Trader’s Almanac , September ended in red 55% of the time while S&P Dow Jones Indices indicated an average fall of 1.03% return over the last 87 years in September. Prelude to September There is no end to hurdles in the global market, with China being the main culprit. The world’s second-largest economy completely derailed the market in August by devaluing its currency yen by 2%, to presumably maintain export competitiveness and by revealing six-and-a-half-year low manufacturing data for August. Even repeated attempts and intervention by the Chinese policy makers in its economy and stock markets did not help and the bloodbath in global risky assets continued. The U.S. and Asian stocks had experienced a three -year low monthly performance in August. Europe saw the most horrible month since the 2011 debt debacle. Commodities crumbled to multi-year lows on demand issues and hit hard all commodity-rich nations. All three key U.S. indices met with correction in the month, though these managed to score gains in the end. In short, August got on investors’ nerves. Weak Start to September Some might have hoped for relief and rebound in this dull scenario, defying the seasonal weakness of September. But much to their shock, September unfolded on a grave note, with U.S. stocks in red on global growth issues. The contagion rooted in China’s factory sector slowdown, the end to stock purchases by Chinese government-backed funds and lack of certainty in the upcoming Fed policy ravaged the global market all over again. Most importantly, oil prices that recently impressed investors with the largest three-day oil price gain in 25 years , resumed their decline on China-led growth fears. Among the top U.S. ETFs, investors saw SPY lose about 3%; DIA shed about 2.9% while QQQ moved lower by about 3.1% on the first day of September. This makes it more important to pinpoint the ETFs that could hop or drop in September as volatility in various markets could make for some interesting near-term outlook. Vanguard Extended Duration Treasury ETF (NYSEARCA: EDV ) As September is the most speculated month in recent times for the rate lift-off, all eyes will be on the Fed meeting scheduled mid-month. A yes or no from the Fed would drag down or drive higher this long-term U.S. Treasury bond ETF. Not only this ETF, several other bond ETFs would be impacted by the Fed move. Market Vectors ChinaAMC SME-ChiNext ETF (NYSEARCA: CNXT ) China, the epicenter of the latest global chaos, should be a high-alert territory throughout September. If no further rotting news emanates from the nation, the stocks and funds might snap back on bargain hunt as they say no news is good news. But if anything wrong happens on the economic front, the ETF could be due for a wilder ride, though the chance of the latter appears less. Vanguard Total Stock Market ETF (NYSEARCA: VTI ) This all-cap U.S. equity ETF could be in watch in September. The fund was off over 2.9% to start the month and could be used as a representative of the total stock market performance in the ill-fated month. Any new China-driven sell-off or stronger Fed rate hike bet could thwart the fund and vice versa. S&P Small-Cap Consumer Staples Portfolio (NASDAQ: PSCC ) Since the consumer staples sector is known to act in investors’ defense in a rough market, this fund might come to one’s rescue in the troubled month. A small-cap exposure will help the fund mitigate the currency-translation woes, and at the same time enable it to capture the improving U.S. consumer sentiment. PSCC was down 4.4% in the last one month and up over 1.7% in the last five days (as of September 1). This was one of the best performances in the consumer staples’ segment. In fact, the consumer staples sector outdid another safe sector utility in recent times. SPDR S&P Metals & Mining ETF (NYSEARCA: XME ) The metal and mining industry has been a dreadful area as commodities were smashed on China-related worries (one of the major consumers of metals in the world) and the strength in the greenback. However, the product gained about 9% in the last five trading sessions (as of September 1, 2015) as price of some precious metals like gold brightened on their safe-haven status and the greenback lost some its strength on Fed ambiguity. So, let’s see whether further pain or gain is in store for this stressed but cheap space. United States Oil Fund (NYSEARCA: USO ) Who can forget oil? It hit September on a bearish note and will keep investors busy in assessing how it will finish the month especially given the flow of news (both good and bad) from the space. USO was down 6.8% on the first day of September and shed just 1.9% in the last one month (as of September 1, 2015). Original Post