Investors return to risk in high-yield, shun stocks-EPFR
NEW YORK Oct 19 (Reuters) - Investors shunned stock funds for the third straight week and bet more on high-yield junk bonds amid year-end uncertainty, data from EPFR Global showed on Friday.
Stock funds worldwide had outflows of $1.21 billion in the week ended Oct. 17, largely untouched from the previous week but still suffering low demand.
U.S. equity funds, however, lost $4.42 billion to outflows, the most since early September with over half of the losses stemming from institutional investors leaving exchange-traded funds.
Investors opted for company debt and put $1.29 billion into "junk" bond funds, underscoring the funds' appeal after rare outflows earlier this month suggested investors had become doubtful about the asset class.
Overall, bond funds worldwide had net inflows of $8.39 billion, the most since early May according to the fund-tracking firm, with U.S. bond funds pulling in $5.4 billion of that total.
Bond funds worldwide have attracted $380.5 billion in inflows this year, a record according to EPFR Global.
"People are just very suspicious of stocks," said Michael Lewitt, portfolio manager at Cumberland Advisors, and added that they are more willing to take risk in high-yield bonds in light of rock-bottom interest rates on U.S. Treasuries.
Lewitt said that the "fiscal cliff" - spending cuts and expiration of Bush-era tax cuts timed for early next year - and the U.S. presidential elections are keeping investors nervous.
Emerging market bond funds, also noted for their high yields, pulled in $1.4 billion in new cash, down modestly from inflows of $1.67 billion the previous week but still drawing demand on behalf of the countries' lower debt levels.
Bridgewater Associates, LP, the world's largest hedge fund with $120 billion in assets, said in a research note on Friday that "EM credit growth is now stable at reasonable levels and the (Institute of International Finance's) most recent survey of EM credit suggests that overall funding conditions for the emerging world are now basically recovered to normal levels."
Investors shunned stock-market risk even as the benchmark S&P 500 rose 2 percent over the reporting period. Markets got a boost from stronger corporate earnings and rating agency Moody's affirming an investment-grade sovereign rating on debt-ridden Spain.
Safe-haven U.S. Treasury demand fell on the positive news, with yields touching 1.722 percent on Tuesday after reports of stronger German investor confidence and a Bloomberg report that Germany may be open to a line of credit for Spain.
Demand for the benchmark 10-year Treasury has continued to fall with yields hitting 1.7694 percent in intraday trading Friday.
While higher-yielding bond funds grabbed the most demand, investors still sought some safety and put $665 million into U.S. government bond funds, the most since August, according to EPFR Global.
Funds that target technology stocks, which have disappointed investors recently with weak corporate earnings, had outflows of $233 million.
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