U.S.-based stock funds have $5.1 billion outflow: Lipper

NEW YORK Thu Sep 5, 2013 8:09pm EDT

NEW YORK (Reuters) - Investors in funds based in the United States pulled $5.1 billion out of stock funds in the latest week, even as strong economic data lifted U.S. stock indices, data from Thomson Reuters' Lipper service showed on Thursday.

The outflows from stock funds in the week ended September 4 marked the third straight week of net withdrawals from the funds, even as U.S. stock prices broadly rose on data showing upwardly revised U.S. economic growth and strength in manufacturing.

Uncertainty over whether the United States would punish Syrian President Bashar al-Assad's government over alleged use of chemical weapons against civilians led investors to pull cash out of stock funds, said Jeff Tjornehoj, head of Americas research at Lipper.

A U.S.-led military strike on Syria could be the start of a "prolonged conflict" that would be negative for stocks, Tjornehoj said. That possibility overshadowed strong U.S. economic data over the period, he added.

Outflows of $5.91 billion from stock exchange-traded funds accounted for the total net outflows from stock funds.

Of the outflows from stock ETFs, investors withdrew $4.8 billion from ETFs that hold U.S. stocks. Of that sum, investors pulled $3.04 billion out of the SPDR S&P 500 ETF Trust (SPY.P), even as the S&P 500 .SPX stock index rose 1.1 percent over the period.

Investors still committed $781.8 million to stock mutual funds, but that amount marked the smallest inflows since early June.

ETFs are generally believed to represent the investment behavior of institutional investors, while mutual funds are thought to represent retail investor patterns.

Emerging market stock funds had $819.3 million in outflows in the week ended September 4, marking the first net outflows from the funds since July even as the MSCI Emerging Markets Index .MSCIEF of global emerging market stocks rose 3.1 percent.

Investors are realizing that a spike higher in interest rates following a reduction in the U.S. Federal Reserve's $85 billion in monthly bond purchases would also lead to higher interest rates for emerging market companies, Tjornehoj said.

Those higher interest rates would have an adverse effect on those companies since they would make borrowing more expensive, he added.

Funds that hold Japanese stocks had outflows of $331.6 million over the weekly period, marking the sixth straight week of outflows from the funds, despite a rise of 5.4 percent for Japan's Nikkei average .N225 over the weekly period.

The recent outflows are a sign that investors have become less enthused with the Bank of Japan's pledge to inject $1.4 trillion of monetary stimulus into Japan's economy in less than two years to fight deflation, said Tjornehoj of Lipper.

Investors also withdrew $503 million from taxable bond funds, marking the third straight week of outflows from the funds as the yield on benchmark 10-year U.S. Treasury notes rose 13 basis points to 2.9 percent over the week. As yields rise, prices fall.

The strong U.S. economic data bolstered expectations that the Fed would soon begin scaling back its monthly bond-buying, causing selling pressure on the bond market over the week.

Riskier high-yield junk bond funds had outflows of $416 million, reversing small inflows in the prior week. Funds that hold floating-rate bank loans had inflows of just $728.3 million, the smallest since mid-January.

Those funds, which are protected from rising interest rates by being pegged to floating-rate benchmarks, have attracted $46.9 billion in new cash so far this year, putting them on track to trounce previous annual records.

Commodities and precious metals funds, which mainly invest in gold futures, had net outflows of $120 million, marking their first outflows in four weeks even as gold prices rose on geopolitical risk surrounding Syria.

Spot gold rose as high as $1,416 an ounce and was up 1.4 percent at the close of trading on September 3 following comments from Republican House Speaker John Boehner supporting U.S. President Barack Obama's call for limited strikes on Syria.

Investors also withdrew $2.6 billion from money market funds, which are low-risk vehicles that invest in short-term securities, marking the first outflows from these funds in five weeks.

The weekly Lipper fund flow data is compiled from reports issued by U.S.-domiciled mutual funds and exchange-traded funds.

(Reporting by Sam Forgione. Editing by Andre Grenon, Ken Wills and Lisa Shumaker)

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