Fixed Income and Money Market Funds Lead April Market Sell-Off
The announcement of widespread future tariffs on April 2nd sent shocks throughout financial markets, leading to the sharpest declines in equity markets since the onset of the COVID-19 pandemic. March had already proven a difficult month for investors, with the S&P 500 experiencing a 10% correction from its February highs after escalating tensions with the United States’ leading trade partners. The April 2nd announcement subsequently caused a $6.6 trillion loss in U.S. stock market value, the largest loss in history according to Dow Jones Market data.
Weekly flows provided by ISS MI MarketPulse provide further insight into the reactions of fund investors to the market upset. March’s downturns had already seen investors redeem extensively from equity strategies, with weekly outflows totaling $35.2 billion for the week ending March 19th. Figure 1 displays weekly net flows on an asset class level. Money market funds also experienced significant net redemptions in mid-March as investors sought liquidity while others prepared to shift assets back into long-term funds. Investors engaged in extensive opportunistic buying the following week, prompting equity inflows to rebound to $21.6 billion. Money market funds saw a similar rebound, gathering $23.9 billion over the following two weeks.
Figure 1: Bond and Money Market Funds Face Harshest Redemptions in April
Weekly flows in billions of U.S. dollars, February 26, 2025 – April 9, 2025
Note: excludes allocation funds and funds of funds
After the announcement of widespread tariffs, investors reacted sharply. Weekly data, however, displayed less of a flight to safety and more of a search for liquidity. Instead of equity outflows spiking in favor of bond inflows, investors redeemed most heavily from their fixed income and money market holdings. Within fixed income, more aggressive and credit quality-sensitive strategies witnessed the highest net withdrawals. High Yield Bond and Bank Loan funds suffered the greatest fixed income outflows at $9.6 billion and $5.0 billion, respectively. The figure below displays the top inflow and outflow categories in April’s opening weeks. Money market fund categories saw the deepest redemptions and experienced notably sharp turnarounds from the prior week.
Figure 2: Bond and Money Market Funds Face Harshest Redemptions in April
Weekly flows in billions of U.S. dollars, February 26, 2025 – April 9, 2025
Alternative and commodity funds had gathered persistent flows on a week-to-week basis through March. General market unease had boosted gold funds and defined outcome ETFs throughout the month. Flows spiked into non-traditional funds for the week ending April 9th, this time fueled most strongly by leveraged strategies. Trading – Leveraged Equity funds experienced the second highest inflows of any category that week at $7.6 billion, propelled by the ProShares UltraPro QQQ ($2.6 billion) and the Direxion Daily Semiconductor Bull 3X Shares ($2.1 billion). The use of leveraged funds as trading and hedging vehicles causes their flows to spike at counterintuitive moments, with leveraged funds experiencing the highest inflows during market downturns and inverse funds seeing strong inflows during rallies.
Investors may have redeemed extensively from fixed income and money market funds in search of liquidity, but they were much more hesitant to take steps that might lock in losses in their equity holdings. Equity funds in the aggregate experienced comparatively minor outflows of $2.0 billion in the week ending April 9th. The asset class instead saw a split between domestic and international strategies. International equity funds faced outflows of $3.4 billion as domestic strategies gathered net deposits of $1.4 billion. A sizable portion of investors were counting on a rebound shortly, with Large Blend strongly leading inflows for the entire fund universe at $12.7 billion.
The scale and speed of recent market activity will continue to occupy the minds of investors and asset managers. Look to more data-driven insights from ISS Market Intelligence, driven by offerings from MarketPulse, MarketSage, and MarketPro, as news develops.
By: Alan Hess, Vice President, ISS Market Intelligence
