High-yield bond funds suffer massive outflow hit-Lipper

Thu May 24, 2012 6:54pm EDT

By Daniel Bases	
    NEW YORK, May 24 (Reuters) - High-yield bond funds suffered
a massive round of net redemptions in the week ended May 23,
tipping the taxable bond fund sector to net sales for the first
time since mid-December, data from Thomson Reuters Lipper showed
on Thursday.	
    Taxable bond funds, including passively managed exchange
traded funds (ETFs), saw net outflows of $1.65 billion, breaking
an inflow streak that had stretched to 22 weeks.	
    Equity funds posted a net outflow of $4.6 billion in the
latest week during which the Standard & Poor's 500 - the
U.S. benchmark stock index - booked a loss of 0.45 percent.	
    Excluding ETFs, which are anecdotally considered to
represent institutional investor behavior, equity funds had net
outflows of $2.44 billion, indicating retail investors were also
big sellers.	
    Investors have been buffeted by European debt woes and talk
of a possible exit from the euro zone and its currency by
Greece.	
    The $2.45 billion move out of high-yield bond funds, the
fourth-largest weekly net redemption on record and the biggest
move since August 20111, seems to represent a snowball effect
from transaction in a single ETF.	
    "When a large institutional investor took $800 million or so
out of a popular junk bond ETF, that may have spooked the retail
crowd or tipped off other institutional investors," said Jeff
Tjornehoj, head of Americas Research at Lipper.	
    "This in-kind redemption occurred in the data prior to this
latest week. However, we are feeling the knock on effect now,"
he said, referring to the SPDR Barclays Capital High Yield Bond
exchange-traded fund.	
    The fund reported net outflows of $452 million in the latest
week, its second largest net redemption on record following the
prior week's whopping $871 million net outflow.	
    An in-kind redemption essentially reduces the size of the
fund without selling the underlying securities. Instead the
investor takes the securities that backed the ETF shares
themselves rather than sell out the position simply for cash.	
    While the cash was squeezed out of taxable bonds and
equities, it did not move into money market funds, which saw a
paltry net inflow of just $54 million for the week.	
    Municipal bond funds had a healthy inflow of $534 million.	
    Corporate investment grade and corporate high quality fixed 
income funds had net outflows.	
    However, the government-backed mortgage bond funds and pure
U.S. Treasury funds had inflows of $524 million and $771
million, respectively, reflecting the lingering anxiety among
investors given a weak global economic backdrop.	
    	
    EQUITY WEAKNESS	
    The outflow from equity funds extended to three straight
weeks. After a solid first quarter, with a cumulative $33.5
billion in net inflows, the second quarter is shaping up as
quite the opposite with $16.3 billion in net redemptions.	
    "Equities are expressing the skeptical nature of investors
at this time. The Facebook flop didn't help matters with regard
to investor confidence," said Lipper's Tjornehoj, referring to
the botched initial public offering of the world's biggest
social network and heralded listing, Facebook Inc, on the
Nasdaq Stock Market.	
    Among the broad equity sectors tracked by Lipper, outflows
came seen in the aggressive, large-cap and small-cap categories.
Energy sector funds had $1.22 billion in net outflows.	
    Financial and banking had net inflows of $448 million, and
gold and natural resource funds pulled in a net $351 million.	
    Equity income funds remain a favorite category for investors
seeking yield, pulling in $281 million, where their safe
government-focused bond funds are struggling with historically
low interest rates.	
    The weekly Lipper fund flow data is compiled from reports
issued by U.S.-domiciled mutual funds and exchange-traded funds.	
    The following is a broad breakdown of the flows for the
week, including exchange-traded funds (in $ billions):	
 Sector                    Flow Chg    %      Assets     Count
                           ($ blns)  Assets  ($ blns)    
 All Equity Funds          -4.612    -0.17   2,646.028   10,348
 Domestic Equities         -3.681    -0.18   2,027.270    7,748
 Non-Domestic Equities     -0.932    -0.15     618.759    2,600
 All Taxable Bond Funds    -1.650    -0.12   1,404.144    4,646
 All Money Market Funds     0.054     0.00   2,290.212    1,429
 All Municipal Bond Funds   0.534     0.18     297.662    1,355
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