Investors pull back from equity funds amid Spain tensions-EPFR

NEW YORK, Sept 28 Fri Sep 28, 2012 4:17pm EDT

NEW YORK, Sept 28 (Reuters) - Some of the sugar high from attempts by central bankers to give a jolt to the global economy may be fading.

Over the past week, investors stashed more money into bond funds and sharply cut back on the amount of new money committed to stock funds amid renewed concerns about the Spanish debt crisis, data from EPFR Global showed on Friday.

On Thursday, the Spanish government said it would cut spending as part of a tough 2013 budget and left the door open for a European bailout package.

Bond funds worldwide raked in $7.6 billion in new money in the week ended Sept. 26, the most taken in by those funds in 20 weeks. U.S. bond funds accounted for more than half of that new money, taking in $4.58 billion.

The big move into bonds may be an indication that some of the initial glow from the Federal Reserve's decision to buy $40 billion in mortgage securities each month is starting to wear off.

Investors also may have been seeking safety, amid violent anti-austerity protests in Spain and continuing uncertainty over how the euro zone nation would address its debt crisis.

In the immediate aftermath of the Fed's announcement, investors worldwide jumped into stocks, junk bonds, emerging markets and other higher yielding assets in a search for higher returns.

In the most recent period surveyed by EPFR, investors didn't abandon stocks, but the amount of new money flowing into equity funds fell sharply. EPFR reports that global stock funds took in $1.88 billion compared to $17 billion in the prior reporting period.

Alan Gayle, senior investment strategist at Ridgeworth Investments, said the renewed concerns about Spain's debt woes had a negative effect on investors and led many to seek safety in bonds.

U.S. stock funds saw $446 million in redemptions in the past week, after taking in $7.5 billion in new money during the previous period.

Junk bond funds, which have garnered new money from investors for 16 straight weeks, took in $1.59 billion in the most recent period. Meanwhile, safe-haven U.S. government debt attracted a meager $5 million in net inflows.

"There is still a high amount of confidence in the U.S. high-yield market," said Gayle, while "there's a lot of frustration with the low level of Treasury yields," he added.

The yield on the benchmark 10-year U.S. Treasury note fell to 1.64 percent in Friday intraday trading.

Overall, the period surveyed by EPFR was a rough one for stocks, with the benchmark S&P 500 index falling 1.9 percent.

It wasn't just Spain that gave investors some jitters, as recent manufacturing data for the euro zone and China also showed continued contraction. And a survey showing that German business sentiment dipped for the fifth consecutive month in September also weighed on stocks.

Robert Francello, head of equity trading for Apex Capital in San Francisco, said risk assets still remain "in vogue." But he said U.S. stock funds will need stronger economic data to increase their intake of new money.

Funds that hold gold were a bigger winner in the week, an indication that some investors are worrying that all actions by central bankers could lead to inflation. Funds that target gold and precious metals took in $1.4 billion.

The "worldwide currency debasement" that investors are seeing as a result of central bank stimulus continues to make gold funds appealing, said Francello.

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