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

NEW YORK Thu Aug 29, 2013 8:05pm EDT

NEW YORK (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 August 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 (SPY.P) still had $1.3 billion in outflows. The exchange-traded fund tracks the benchmark S&P 500 .SPX 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 August28.

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 .N225 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 ($Bil) % Assets Assets ($Bil) Count 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

(Reporting by Sam Forgione; Editing by Bernard Orr and Bob Burgdorfer)

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