UPDATE 2-U.S.-based stock funds post biggest weekly outflow since July '12-Lipper

Thu Aug 22, 2013 8:28pm EDT

By Sam Forgione
    NEW YORK, Aug 22 (Reuters) - Investors in funds based in the
United States pulled roughly $9.4 billion out of stock funds in
the latest week, marking the biggest outflow from the funds
since July 2012, data from Thomson Reuters Lipper service showed
on Thursday.
    A large chunk of the outflows over the week ended Aug. 21
came from the SPDR S&P 500 ETF Trust. Investors withdrew
$10.27 billion from the exchange-traded fund, which tracks the
performance of the benchmark S&P 500 stock index. 
    The index dropped 2.53 percent over the weekly reporting
period as positive U.S. economic data reinforced concerns that
the Federal Reserve will soon scale back its $85 billion in
monthly bond purchases. 
    "Fed actions are front-and-center," said Jeff Tjornehoj,
head of Americas research at Lipper. "We had plenty of people
trying to avoid the next selloff" in U.S. stocks, which could
occur when the U.S. central bank announces a reduction in its
bond-buying, he said.
    U.S. stock markets fell over the week partly on hesitation
leading up to Aug. 21, when the Federal Open Market Committee,
the U.S. central bank's policy-setting group, released the
minutes of its July 30-31 meeting.
    The minutes offered few clues on the timing of a reduction
in the Fed's bond-buying program [ID: nL2N0GM1EC]. 
    Outflows from ETFs accounted for the total withdrawals from
stock funds in the latest week. Investors withdrew $11.4 billion
from stock ETFs, the most in nearly two years. Stock mutual
funds, meanwhile, took in $2.05 billion, down modestly from
inflows of $2.56 billion the prior week. 
    The big outflows from stock ETFs led to the overall outflow
of roughly $9.4 billion from stock funds, which also marked the
first outflow from stock funds in eight weeks. 
     ETFs are generally believed to represent the investment
behavior of institutional investors, while mutual funds are
thought to represent the retail investor.
    Funds that hold European stocks attracted $1.08 billion in
new cash, however, marking the biggest inflow to the funds in 10
 weeks. The funds were popular even as the FTSEurofirst 300
 index of top European shares fell 2.63 over the week. 
    Investors have settled on the idea that European stocks'
"worst days are behind them," Tjornehoj said in reference to
signs that the euro zone debt crisis has improved.
    Data on Aug. 14 showed that the economies of Germany and
France grew more quickly than expected in the second quarter,
pulling the euro zone out of a 1-1/2 year recession
.
    Funds that hold Japanese stocks, which had inflows for 28
straight weeks at the end of 2012 and into 2013, had their
fourth straight week of outflows in the latest reporting period.
Investors pulled $401.9 million from the funds, the most since
early June. 
    Tjornehoj of Lipper said investors may be losing faith in
the Bank of Japan's stimulus program. The central bank announced
in April that it would inject $1.4 trillion into the nation's
economy in less than two years to fight deflation, fueling a
rally in Japanese stocks. 
    Investors also lost enthusiasm for bond funds, pulling $3.9
billion from taxable bond funds in the latest week as benchmark
U.S. Treasury yields hit two-year highs. As yields rise, prices
fall. The outflows reversed the prior week's inflows of $1.3
billion. 
    The yield on the benchmark 10-year U.S. Treasury bond
reached as high as 2.87 percent over the week as investors
worried that the Fed will start scaling back its stimulus in
September. The Fed's next policy meeting will be held on Sept.
17-18.
    The Fed is buying Treasuries and agency mortgages in an
effort to spur hiring and keep interest rates low. The stimulus
has been a major source of support for both stock and bond
markets this year, with some analysts partly citing it as a
reason for the S&P 500's rise of more than 16 percent this year.
    Both inflation-protected bond funds and riskier high-yield
junk bond funds had the biggest outflows in eight weeks over the
latest period. 
    Inflation-protected bond funds, which hold bonds such as
Treasury Inflation-Protected Securities or TIPS, had outflows of
$499 million. Junk bond funds had outflows of $2.3 billion,
showing another indication of investors' unwillingness to take
risk in the latest week, Tjornehoj said.
    Funds that hold floating-rate bank loans still attracted
$1.8 billion in the latest week, up modestly from the prior
week's inflows. Investors have poured $45.5 billion into the
funds this year. 
    Floating-rate loans, also known as leveraged loans, are
protected from rising interest rates by being pegged to
floating-rate benchmarks. Fears of rising interest rates tied to
a pullback in the Fed's easing have spurred much of the new
demand for the funds. 
    Commodities and precious metals funds, which mainly invest
in gold futures, attracted small inflows of $98.7 million over
the week. Those cash gains marked the second straight week of
inflows into the funds after they had steady outflows from the
start of April through early August.
    Gold rose to a near two-month high on Aug. 15 as a weaker
dollar triggered short-covering and a technical breakout once
prices breached key resistance at $1,350 an ounce.
    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
                           ($Bil)    Assets  ($Bil)     
 All Equity Funds          -9.352    -0.27   3,427.600  10,358
 Domestic Equities         -12.289   -0.46   2,578.921  7,651
 Non-Domestic Equities     2.936     0.34    848.679    2,707
 All Taxable Bond Funds    -3.910    -0.25   1,574.027  5,070
 All Money Market Funds    10.717    0.46    2,363.709  1,340
 All Municipal Bond Funds  -2.141    -0.74   286.295    1,398
A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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