UPDATE 2-Investors pull less cash from U.S.-based stock funds -Lipper

Thu Aug 29, 2013 7:48pm EDT

By Sam Forgione
    NEW YORK, Aug 29 (Reuters) - Investors in U.S.-based funds
pulled $863.1 million out of stock funds in the latest week,
down from massive outflows in the prior week even as the
possibility of military action against Syria unnerved markets,
data from Lipper showed on Thursday. 
    The outflows from stock funds in the week ended Aug. 28 were
down from outflows of about $9.4 billion from the funds the
prior week, which were the most since July 2012, data from
Lipper, a Thomson Reuters service, showed. 
    Tom Roseen, head of research services at Lipper, said low
trading volume softened the impact of Syria as well as a
technical glitch issue that halted the Nasdaq stock exchange
over the weekly reporting period.
    "The lack of volume, I think, really helped us," Roseen
said.
    While outflows from stock funds eased in total, the SPDR S&P
500 ETF Trust still had $1.3 billion in outflows. The
exchange-traded fund tracks the benchmark S&P 500 stock
index, which fell 0.5 percent over the weekly period.
    Overall, stock ETFs had $3.1 billion in outflows in the
latest week, down from huge outflows of $11.4 billion the
previous week. Stock mutual funds, however, still attracted
$2.24 billion in new cash. 
    ETFs are generally believed to represent the investment
behavior of institutional investors, while mutual funds are
thought to represent the retail investor.
    The possibility of a U.S.-led military strike on Syria over
an alleged chemical weapons attack hit world stock markets
during the weekly period, leading investors to seek safety in
gold, which reached a 3-1/2-month peak on Aug.28. 
    Commodities and precious metals funds, which mainly invest
in gold futures, attracted $328.1 million in new cash, marking
their third consecutive week of inflows.
    "Syria was the main front-and-center piece that kept people
on their heels," said Roseen. He said that geopolitical
uncertainty was a major driver of stock fund outflows while also
leading investors to seek gold funds. 
    Japanese stock funds posted outflows of $240.6 million in
the latest week, marking the fifth straight week in which
investors have pulled cash from the funds. 
    Possible U.S. military action against the Syrian government
also weighed on Japanese stocks over the period. Japan's Nikkei
average dropped 0.64 over the weekly reporting period. 
    Investors pulled $712.1 million out of taxable bond funds,
meanwhile, down from big outflows of $3.9 billion the previous
week. Yields on benchmark 10-year U.S. Treasury notes fell from
two-year highs over the latest weekly period. As yields fall,
prices rise. 
    Bonds benefited from caution surrounding Syria, said
Lipper's Roseen, leading to reduced selling pressure on bonds
over the weekly period and smaller outflows from bond funds. 
    Municipal bond funds, however, still had outflows of $1.74
billion. While those outflows were smaller than the prior week's
outflows of $2.14 billion, they marked the 14th straight week in
which investors have pulled cash from the funds. 
    Analysts have said that investors remain wary of municipal
debt following the city of Detroit's bankruptcy filing on July
18, which marked the largest municipal bankruptcy in U.S.
history. 
    Emerging market bond funds had outflows of $344.8 million in
the latest week. Emerging market assets, already hit by the
expected reduction in the U.S. Federal Reserve's $85 billion in
monthly bond purchases, took another hit over the week in
response to geopolitical concerns. 
    Investors gave $1.2 billion to floating-rate loan funds,
however, down modestly from the prior week but still showing
strong demand for the funds.
    Bank loans, also known as leveraged loans, are protected
from rising interest rates by being pegged to floating-rate
benchmarks. Investors have sought the funds in anticipation of a
further rise in interest rates when the Fed scales back its
bond-buying.
    Some investors also sought yield in riskier high-yield junk
bond funds, which took in $54.7 million in new cash over the
week. Those inflows -albeit meager- reversed outflows of $2.3
billion the prior week, which were the biggest since late June.
    Money market funds, which are low-risk vehicles that invest
in short-term securities, attracted $5.5 billion in the latest
week. The funds have pulled in roughly $35.5 billion over the
past four weeks. 
    Investors are parking cash in money market funds in order to
take profits from gains in U.S. stocks and amid uncertainty
surrounding Fed monetary policy, said Roseen. The S&P 500 has
risen nearly 15 percent this year.
    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          -0.863    -0.03   3,412.460  10,373
 Domestic Equities         -2.191    -0.08   2,571.370  7,653
 Non-Domestic Equities     1.328     0.16    841.090    2,720
 All Taxable Bond Funds    -0.712    -0.05   1,573.545  5,067
 All Money Market Funds    5.469     0.23    2,367.570  1,329
 All Municipal Bond Funds  -1.739    -0.61   283.934    1,397