US Equities Saw Outflows on Higher Valuations, Rate Hike Concerns



Consistent and rising outflow

In the week ended July 17, US equities saw total outflows of $2.9 billion versus inflows of $0.2 billion in the previous week.  Equity outflows are mainly due to high valuations, a looming rate hike, and growth peaking at current levels.

The US economy’s fundamentals improved for the week, with US banks reporting strong earnings in the second quarter as well as improved labor markets. However, the expectation of a rate hike and better equity opportunities outside of the United States is driving outflows.

Mutual fund companies including T. Rowe Price (TROW), American Funds, Vanguard, and Janus Capital Group (JNS) will likely be negatively affected by the fall in investment.

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ETF investment outflows

The ETF market has grown significantly over the span of just a decade to total more than $3 trillion. US equities represent more than 65% of the total allocation.

In the week ended July 17, the Financial Select SPDR (XLF), the Utilities Select SPDR (XLU), the iShares Core S&P Mid-Cap (IJH), the Vanguard S&P 500 (VOO), the iShares Russell 2000 Growth (IWO), and the First Trust Financials AlphaDEX (FXO) saw a combined net outflow of $2.8 billion. Investors pulled money from financials, utilities, and indexes.

ETF investment inflows

The ETFs that attracted investments during the week include the SPDR S&P 500 (SPY), the iShares Russell 2000 (IWM), the PowerShares QQQ (QQQ), the Vanguard Total Stock Market (VTI), and the Health Care Select SPDR (XLV). Together, these funds attracted $7.0 billion in investments.

Healthcare and indexes attracted investments backed by positive indicators in these sectors. Asset managers like BlackRock (BLK), State Street (STT), and Vanguard are the major players in these ETFs.


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