Stocks funds globally see net outflow of $10.7 billion-EPFR

NEW YORK, July 27 Fri Jul 27, 2012 4:37pm EDT

NEW YORK, July 27 (Reuters) - Investors' distaste for risk was on display in the latest week as stock funds globally suffered net outflows of $10.7 billion, the largest since November, on worsening conditions in Europe, data from EPFR Global showed.

So far this year, those equity funds -- which include exchange-trade funds -- have seen investors pull a net $31.4 billion, EPFR added. In comparison, bond funds globally have taken in $223.2 billion so far this year versus an inflow of $115.2 billion during the comparable period last year.

Last November, stock funds globally bled net $15.6 billion in a single week.

For their part, bond funds globally had inflows of $3.7 billion in the week ended July 25, down from inflows of $4.7 billion. U.S. bond funds came out ahead with $3.12 billion in inflows, up slightly from the previous week's inflows of $3.08 billion. The hunt for yield sent high-yield "junk" bond inflows up to $2.21 billion, compared to inflows of $1.32 billion the previous week.

"The news in Europe continued to deteriorate in every respect," said Jim Awad, managing director at Zephyr Management.

The benchmark S&P 500 fell 2.54 percent over the period, while the MSCI world equity index fell about 3 percent as Spanish borrowing costs soared and concerns that Greece may not be able to repay its debts weighed on markets.

The reporting period, ending on Wednesday, did not include European Central Bank President Mario Draghi's comments on Thursday that the bank would target high sovereign bond yields, which elevated the S&P 500 to 1.65 percent.

Institutional investor redemptions from exchange-traded funds led to outflows of $8.82 billion from U.S. equity funds.

"We've broken to all-time lows on the long U.S. government bond yield- that was a pretty important technical resistance," said Michael Jones, chairman and chief investment officer of Riverfront Investment Group, with regard to the exchange-traded fund outflows.

Besides the ETF outflows, actively managed stock funds had outflows of $267 million. Despite the net outflows from stock funds, funds that target dividend stocks were a bright spot and attracted net inflows of $858 million, which EPFR Global's director of research Cameron Brandt attributed to the hunt for yield.

Emerging market equity funds continued to lose money, though at a lesser degree from the previous week, with outflows of $104 million compared to the previous week's outflows of $801 million.

Money market funds, which fluctuate on a weekly basis, saw inflows of $7.96 billion globally compared to outflows of $10.56 billion the previous week.

EUROPE AND SECTOR-SPECIFIC FUNDS

European bond funds saw outflows of $117 million, reversing the previous week's inflows of $256 million.

European stock funds also lost money, albeit at an improved pace, with outflows of $154 million compared to outflows of $308 million the previous week.

"The primary sense of desperation came as a result of the accelerating borrowing costs, and that just exasperated the level of despair," said Jeff Sica, chief investment officer of Sica Wealth Management.

All sector-specific stock funds lost money. Energy stock funds had outflows of $826 million, reversing the previous week's inflows of $418 million, and commodities funds lost $815 million.

"People have become disillusioned with stocks due to all of the scandals in the financial industry ... and the fact that stocks have been highly volatile," said Zephyr Management's Awad.

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