U.S.-based stock funds post $3.1 billion outflow: Lipper

NEW YORK Thu Oct 3, 2013 7:55pm EDT

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NEW YORK (Reuters) - Investors in funds based in the United States pulled $3.1 billion out of stock funds in the latest week due to the partial U.S. government shutdown and looming concerns over the debt ceiling, data from Thomson Reuters' Lipper service showed Thursday.

The outflows from stock funds in the week ended October 2 marked the first net drain of funds in four weeks and reversed the prior week's inflows of $3.5 billion. Global stock markets fell ahead of the U.S. government shutdown on October 1, which was the first time that had happened in 17 years.

"Things started to heat up more as the week went by," said Jeff Tjornehoj, head of Americas research at Lipper. The CBOE's Volatility index, known as Wall Street's fear gauge, hit a September high of 17.49 on September 30.

Worries also grew ahead of a looming fight between Democratic and Republican lawmakers about raising the U.S. debt ceiling. The U.S. could face an unprecedented default if Congress does not raise the $16.7 trillion debt limit by October 17.

The S&P 500 stock index, however, rose a slight 0.1 percent over Lipper's weekly reporting period. Still, investors pulled $4.5 billion from funds that hold U.S. stocks, which accounted for the total net withdrawals from stock funds.

Funds that hold international stocks, meanwhile, had inflows of $1.2 billion, marking the fourth straight week of new demand for the funds. Demand fell from the prior week, however, when the funds took in $3.7 billion in new cash.

Stock mutual funds had their first outflows - albeit small - since the start of the year of $292 million. Stock exchange-traded funds (ETFs) had outflows of $2.8 billion, accounting for most of the outflows. The SPDR S&P MidCap 400 ETF sustained the largest outflows of $1.4 billion.

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

Investors pulled $2.2 billion from taxable bond funds, partly on worries about the U.S. debt ceiling. Funds that mainly hold Treasuries were especially hard-hit, with outflows of $2.2 billion, the biggest outflows in eight weeks.

Investors pulled cash out of Treasury funds on rising fears that the U.S. could possibly default on its debt, said Tjornehoj. The impact that a default would have on Treasury bonds would be "crushing for many years to come," he said.

Investors also toned down their exposure to riskier high-yield junk bond funds and committed just $238 million to the funds after pouring $3.1 billion into them the previous week. The prior week's inflows were the biggest since July.

Low-risk money market funds posted $4.4 billion in outflows, marking the biggest outflow from the funds in nine weeks. The outflows were likely a result of corporations pulling cash out of the funds in order to pay quarter-end tax bills, said Tjornehoj.

Investors put $177 million into funds that hold Japanese stocks, meanwhile, marking the fourth straight week of inflows to those funds even as Japan's Nikkei average fell 3.1 percent over the week.

Commodities and precious metals funds, which mainly invest in gold futures, had outflows of $343 million after an inflow of $53 million in the prior week. Gold slid below $1,300 per ounce to its lowest level since early August on October 1.

(Reporting by Sam Forgione; Editing by Dan Grebler)

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