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Fund Flows During COVID-19Sean CollinsChief EconomistInvestment Company Institute
May 27, 2020
Overview
» Importance of funds to households and financial markets»COVID-19: Massive real shock that impaired financial markets»Government acted to restore flow of credit»Fund flows reflected market conditions»Conclusions
Fund Flows During COVID-19 1May 27, 2020
Importance of Funds to Households and Financial Markets
Fund Flows During COVID-19 2May 27, 2020
Funds Are a Key Savings Vehicle for Households
Assets in registered investment companies
$23 trillion
Share of household financial assets held in funds
23%
Number of Americans owning mutual funds
102 million
Proportion citing retirement saving as primary financial goal
73%
Fund Flows During COVID-19 3May 27, 2020
Fund Assets Are Spread Across Markets
Domestic equity funds: $8.6 trillion (38%)
World equity funds:$2.9 trillion (13%)Bond funds:
$5.2 trillion (23%)
Money market funds:$4.3 trillion (19%)
Hybrid:*$1.4 trillion (6%)
May 27, 2020 Fund Flows During COVID-19 4
Percentage of assets, March 2020
*This category includes ETFs—both registered and not registered under the Investment Company Act of 1940—that invest primarily in commodities, currencies, and futures.Source: Investment Company Institute
US mutual fund and ETF total net assets: $22.5 trillion
Funds Channel Households’ Savings to Companies, Federal Government, and Municipalities
May 27, 2020 Fund Flows During COVID-19 5
Percentage of total market securities held by registered investment companies, 2019
* Includes US and foreign corporate bonds, as reported by Federal Reserve BoardSources: Investment Company Institute, Federal Reserve Board, and World Federation of Exchanges
24 17 1325 25
84
1
4
6879 86
71 75
US equity Corporate bonds* Treasuries & agencies Muni securities Commercial paper
Mutual funds Other RICs Other investors
COVID-19: Massive Real Shock that Impaired Financial Markets
6Fund Flows During COVID-19May 27, 2020
COVID-19: A Massive Shock to Real Economy
-40
-30
-20
-10
0
10
20
1948
1950
1952
1954
1956
1958
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
Fund Flows During COVID-19 7
Percentage change in real US GDP, quarterly, seasonally adjusted annual rate
* Note: 2020:Q2 is a Bloomberg forecast as of May 19, 2020.
*
May 27, 2020
Spread of Coronavirus and Effect on Markets
2,000
2,200
2,400
2,600
2,800
3,000
3,200
3,400
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
Jan-22 Jan-31 Feb-11 Feb-21 Mar-3 Mar-12 Mar-23 Apr-2 Apr-13 Apr-22 May-1
Worldwide coronavirus cases (left scale)
S&P 500 (right scale)
Fund Flows During COVID-19 8
Thousands of coronavirus cases (left axis); level of S&P 500 (right axis)
May 27, 2020
Volatility Surpassed Levels Seen in 2008
0
10
20
30
40
50
60
70
80
90
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Fund Flows During COVID-19 9
Level of VIX, daily
Source: Cboe Exchange, Inc.
May 27, 2020
Yields on Long-Term Corporate Debt Jumped
0
2
4
6
8
10
12
1/2 1/9 1/16 1/23 1/30 2/6 2/13 2/20 2/27 3/5 3/12 3/19 3/26 4/2 4/9 4/16 4/23 4/30
High-Yield
BBB
Fund Flows During COVID-19 10
Yields on high-yield and BBB-rated bonds, percentage, daily
Source: Federal Reserve FRED
May 27, 2020
0
0.5
1
1.5
2
2.5
3
3/2
3/4
3/6
3/1
0
3/1
2
3/1
6
3/1
8
3/2
0
3/2
4
3/2
6
3/3
0
4/1
4/3
4/7
4/9
4/1
4
4/1
6
4/2
0
4/2
2
4/2
4
4/2
8
4/3
0
Yield on 30-day AA ABCP
0
1
2
3
4
5
6
3/2
3/4
3/6
3/1
0
3/1
2
3/1
6
3/1
8
3/2
0
3/2
4
3/2
6
3/3
0
4/1
4/3
4/7
4/9
4/1
4
4/1
6
4/2
0
4/2
2
4/2
4
4/2
8
4/3
0
SIFMA 7-day Muni Yield Index
Fund Flows During COVID-19 11
Source: Federal Reserve Board; SIFMA
And Short-Term Credit Markets Were StressedYields on 3-month commercial paper and SIFMA municipal swap index, percentage, daily
May 27, 2020
Federal Government Acted to Protect Economy
»Federal Reserve»Cut rates, purchased gov’t securities, boosted swap lines» Lending facilities: MMLF, CPFF, PDCF, PMCCF, SMCCF, TALF, PPPLF,
MLF, Main Street Lending»Congress»CARES Act – provided capital for Treasury to backstop Fed facilities
»SEC» Supported open and orderly equity markets»Provided exemptive relief for funds
Fund Flows During COVID-19 12May 27, 2020
Fund Flows Reflected Market Conditions
13Fund Flows During COVID-19May 27, 2020
6
-7
3
-13 -4
8 8 1
49
94
159
286
175
7850
128
82
34 20
-2
8 15 22 29 5 12 19 26 4 11 18 25 1 8 15 22 29 6 13 15*
Prime retail
Prime institutional
Tax-exempt
Government
Investors Sought Liquidity in Government MMFs
Fund Flows During COVID-19 14
Change in money market fund assets, billions of dollars, weekly
*Government includes “Treasury” and “Government” funds from Crane Data.Sources: Investment Company Institute and Crane Data
January February March April May
May 27, 2020
348151
-386
-37
83 35
-75
169
Jul Aug Sep Oct
2008
836
342
-139
46
-18
33
691
397
Jan Feb Mar Apr
2020
Tax-exempt
Prime
Government
Fund Flows During COVID-19 15
Source: Investment Company Institute
Money Market Funds: 2020 vs 2008Changes in assets, billions of dollars
May 27, 2020
31 53 53 51 49 46 43 40
3/18 3/25 4/1 4/8 4/15 4/22 4/29 5/6 5/13
2020
MMLF
CPFF
145
243 257
73
152 139 123 108
96
85 77
9/17 9/24 10/1 10/8 10/15 10/22 10/29 11/5 11/12
2008
AMLF
CPFF
Fund Flows During COVID-19 16
Source: Federal Reserve Board
Use of Federal Reserve Liquidity Facilities: 2020 vs 2008Asset levels reported on Fed’s balance sheet; billions of dollars, weekly Wednesday
May 27, 2020
2011 13 12 8 11 11 2
-24-32
-93 -91
-34
-12 -1
4 2 10 8 3
8 15 22 29 5 12 19 26 4 11 18 25 1 8 15 22 29 6 13* 15*
MunicipalGlobalMultisectorGovernmentHigh yieldInvestment grade
Flows to Bond Mutual Funds
Fund Flows During COVID-19 17
Billions of dollars, weekly
*Data for May 13 and 15 are estimated from Morningstar daily data.Sources: Investment Company Institute and Morningstar
Memo: percent of previous month assets0.43% 0.23% 0.28% 0.26% 0.17% 0.22% 0.23% 0.04% -0.49% -0.66% -1.90% -1.85% -0.77% -0.27% -0.03% 0.10% 0.05% 0.23% 0.19% 0.06%
January February March April May
May 27, 2020
-5.2
-2.4
-3.9-3.0
-4.3
-0.9
-4.5
2.4
-8.1
-4.5
-7.9
-5.5-4.9
-2.3
Mar 2020 Oct 2008
Total Invest. grade High yield* Govt Multisector Global Municipal
Flows to Bond Mutual Funds: 2020 vs 2008
Fund Flows During COVID-19 18
Percent of assets
*Data exclude high-yield funds designated as floating rate funds. Source: Investment Company Institute
May 27, 2020
3.5 3.3 3.1 3.2 3.0 3.3 2.6 3.0
-0.5-3.1
-20.4 -20.1
-1.4-2.9
1.3 0.6
-1.8
0.4 0.5 0.3
8 15 22 29 5 12 19 26 4 11 18 25 1 8 15 22 29 6 13 15
Coronavirus and Municipal Sector
Fund Flows During COVID-19 19
Net flows to municipal bond funds, billions of dollars, weekly, Jan 8, 2020–Apr 27, 2020
Note: Includes mutual funds and ETFs; municipal bond mutual fund data from May 13 and 15 are estimated from Morningstar daily data, and municipal bond ETF data from May 13 and 15 are estimated from Bloomberg daily data.Sources: Investment Company Institute, Morningstar Direct, and Bloomberg
Memo: percent of previous month assets0.41% 0.38% 0.36% 0.37% 0.34% 0.37% 0.30% 0.34% -0.06% -0.34% -2.23% -2.20% -0.18% -0.35% 0.16% 0.07% -0.21% 0.05% 0.06% 0.04%
January February March April May
May 27, 2020
32.4
3.4
18.0
5.0
31.2
2.8
32.2
10.4
Investment Grade Corporate Government Municipal High-Yield
Purchases* Sales†
‘Dark Matter’: Funds Aren’t the Only Investors in the Universe
Fund Flows During COVID-19 20
Funds’ share of trading volumes in selected types of fixed income securities, March 2020
* Calculated as (gross fund purchases / (1/2 trading volume on relevant market) † Calculated as (gross fund sales / (1/2 trading volume on relevant market)Sources: Investment Company Institute, FINRA TRACE
May 27, 2020
High Yield Bond Mutual FundsNet flows as a percentage of assets; monthly, January 2006–March 2020
Note: Data exclude high-yield funds designated as floating rate funds. Source: Investment Company Institute
-20
-15
-10
-5
0
5
10
15
20
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Bottom 10th
percentile of funds
10% of high-yield funds saw inflows greater
than this
Financial crisis
Eurozonecrisis
Taper tantrum
Global pandemic
Fund Flows During COVID-19 21May 27, 2020
Fund Flows and Changes in Assets: Not the SameNet flows and changes in assets of bank loan funds (percent of previous month’s assets)
Note: Includes assets in mutual funds and ETFs.Source: Investment Company Institute
-25
-20
-15
-10
-5
0
5
10
15
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Net flows Change in assets
Financial crisis
Eurozonecrisis
Global pandemic
Fund Flows During COVID-19 22May 27, 2020
Target Date Funds Can Provide Some Counterbalance to Financial Markets
May 27, 2020 Fund Flows During COVID-19 23
Hypothetical example for March 19, 2020
Target allocation
Total return
Allocation outcome
Likely action
Domestic equity1 50.0% +1.1% 50.3% Sell
International equity2 20.0% -0.2% 19.9% Buy
Government bond3 15.0% +1.2% 15.1% Sell
Corporate bond4 15.0% -1.7% 14.7% Buy
1. Total return on the Wilshire 5000 Index for March 19, 2020.2. Total return on the MSCI All Country World ex US Index for March 19, 2020.3. Total return on the ICE BofA US Treasury & Agency Index for March 19, 20204. Total return on the ICE BofA US Corporate Index for March 19, 2020Source: Investment Company Institute and Bloomberg
-13-1
2
-9
138
0
-14-20
16
-11
-41
126 5
-9
-20 -22
-4 -6
8 15 22 29 5 12 19 26 4 11 18 25 1 8 15 22 29 6 13* 15*
Flows to Equity Mutual Funds and ETFs
Fund Flows During COVID-19 24
Billions of dollars, weekly
*Equity mutual fund data for May 13 and 15 are estimated from Morningstar daily data, and equity ETF data from May 13 and 15 are estimated from Bloomberg daily data.Sources: Investment Company Institute, Morningstar, and Bloomberg
Memo: percent of previous month assets
-0.09% -0.01% 0.02% -0.06% 0.09% 0.05% 0.00% -0.09% -0.15% 0.12% -0.08% -0.30% 0.11% 0.06% 0.04% -0.08% -0.17% -0.19% -0.04% -0.05%
January February March April May
May 27, 2020
8.9 14.3
-39.1
5.5-6.2
-18.3
-24.0
-4.3
2.7
-4.0
-63.1
1.2
Aug Sep Oct Nov
2008
-24.5 -28.2
-7.7
15.916.610.4
-18.1
-14.2
-8.0-17.9 -25.9
1.7
Jan Feb Mar Apr*
2020
World Domestic
Fund Flows During COVID-19 25
*Estimated from weekly data through April 22.Source: Investment Company Institute.
Flows to Equity Funds: 2020 vs 2008Equity mutual funds and equity ETFs, net cash flow, billions of dollars
May 27, 2020
ETF Trading Volumes Rose
20%
25%
30%
35%
40%
45%
2/3 2/10 2/18 2/25 3/3 3/10 3/17 3/24 3/31 4/7 4/15 4/22 4/29 5/6 5/13
Fund Flows During COVID-19 26
ETF trading volume as percent of stock market trading volume; daily
Sources: Investment Company Institute tabulations of Bloomberg and Cboe Exchange, Inc. data
May 27, 2020
ETFs Provided Price Discovery
-160
-140
-120
-100
-80
-60
-40
-20
0
20
02 03 04 05 06 09 10 11 12 13 16 17 18 19 20 23 24 25 26 27 30 31
Bond ETFEquity ETF
Fund Flows During COVID-19 27
Median premium (+)/discount (-), basis points
Source: BloombergMarch
May 27, 2020
Conclusions
»What worked well:» Equity markets (including equity mutual funds and ETFs) traded freely» Funds’ BCP worked, supported investors despite remote work»Government’s response to financial markets was strong, effective
»Areas for fact-gathering:» Functioning of money and bond markets» Size and role of all participants in fixed income markets» Interaction among all market participants and its impact on markets» Broker/dealer balance sheet capacity
Fund Flows During COVID-19 28May 27, 2020
Thank you
Fund Flows During COVID-19 29May 27, 2020