UPDATE 2-U.S.-based stock funds attract $12 bln in latest week -Lipper

Fri Nov 29, 2013 7:44pm EST

By Sam Forgione
    NEW YORK, Nov 29 (Reuters) - Investors in funds based in the
United States poured $12 billion into stock funds in the week
ended Wednesday in response to positive U.S. economic figures,
data from Thomson Reuters Lipper service showed on Friday. 
    The inflows into stock funds in the week ended Nov. 27 were
the biggest in five weeks. U.S. stock markets hit record highs
on Nov. 22 after strong U.S. jobs data and assurances that the
Federal Reserve would remain accommodative. 
    "It's more of a momentum-driven market," said Barry Fennell,
senior research analyst at Lipper. Investors have more
confidence in the "staying power" of the U.S. economic recovery,
he said. 
    Stock funds have attracted new demand from investors over
the past three weeks as U.S. stocks have continued to rise.
Funds that specialized in U.S. stocks attracted $8.9 billion of
the total cash into stock funds in the latest week, while funds
that hold non-U.S. stocks attracted $3.1 billion. 
    Data early in the reporting period showed that a number of
Americans filing new claims for jobless benefits fell sharply
over the prior week while a gauge of factory activity hit an
eight-month high in early November.
    Financial data firm Markit said its preliminary U.S.
Manufacturing Purchasing Managers Index rose to an eight-month
high of 54.3 from 51.8 in October, while the Labor Department
said that initial claims for state unemployment benefits fell
21,000 to a seasonally adjusted 323,000. Economists had forecast
a drop to just 335,000.
    The Standard & Poor's 500 stock index rose 1.5
percent over the weekly period. The index has hit multiple
record highs and risen over 26 percent this year. 
    Investors grew more assured that the Fed would keep official
short-term interest rates low for some time, even if it does
plan to scale back its $85 billion in monthly bond-buying, said
Fennell. 
    Stock exchange-traded funds attracted $10.3 billion of the
overall cash into stock funds. The SPDR S&P 500 ETF Trust
 attracted the greatest demand, with inflows of $4.7
billion. 
    ETFs are generally believed to represent the investment
behavior of institutional investors, while mutual funds are
thought to represent the retail investor.
    Japanese stock funds attracted $691 million in new cash,
marking their biggest inflows since July. Japan's Nikkei average
 rallied 2.5 percent over the weekly period.
    Funds that hold emerging market stocks attracted a meager
$13.4 million in new cash, which still marked the first inflows
into the funds in three weeks, despite a 1.1 percent drop in
MSCI's global emerging market equities index over the
week.  
    Taxable bond funds attracted just $141.5 million after
outflows of $430 million the previous week. Fennell said that
bond investors were more concerned during the week about a
pullback in the Fed's monetary stimulus than were stock
investors.
    "We are in uncharted territory at this point," Fennell said
in reference to the impact of the central bank's potential
reduction in its bond-buying. "Nobody knows what's going to
happen." 
    Funds that hold safe-haven U.S. Treasuries had outflows of
$796.5 million over the weekly period, marking the biggest
outflows in four weeks and the third straight week of investor
withdrawals. 
    Investors pulled money out of Treasury funds in preparation
for a pullback in the Fed's easy money policies at its December
meeting, Fennell said. The cash that was taken out of bonds
likely went toward low-risk money market funds, he added, which
attracted $3.1 billion. 
    Prices on benchmark 10-year U.S. Treasury notes rose
modestly during the week, despite uncertainty about the Fed's
timing for reducing its stimulus. The yield on the bond fell
five basis points to 2.74 percent over the weekly period. 
    Funds that hold high-yield junk bonds, which are viewed as
riskier because they carry lower-quality credit ratings,
attracted $433 million in the latest week, marking the third
straight week of new demand. 
    Funds that hold floating-rate bank loans were also popular,
with inflows of $823.2 million. The funds have attracted $59.7
billion in new cash this year on worries that a pullback in the
Fed's accommodative policies will trigger a spike higher in
interest rates. 
    A sharp jump in rates would weaken the value of bonds, since
bond prices move inversely to their yields. Bank loans are
protected from such a spike by being pegged to floating-rate
benchmarks. 
    Investors shunned gold and pulled $868 million out of
commodities and precious metals funds. That marked the biggest
weekly withdrawals from the funds - which mainly invest in gold
futures - since early July. 
    Investors are fatigued by gold's weak performance this year,
said Fennell, while greater confidence in the U.S. economic
recovery has hurt demand for the metal as a safety play. 
    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  Assets      Count
                      ($Bil)               ($Bil)      
 All Equity Funds     11.994     0.32      3,788.470   10,374
 Domestic Equities    8.873      0.32      2,829.830   7,640
 Non-Domestic         3.121      0.33      958.640     2,734
 Equities                                              
 All Taxable Bond     0.141      0.01      1,638.196   5,180
 Funds                                                 
 All Money Market     3.082      0.13      2,314.121   1,281
 Funds                                                 
 All Municipal Bond   -0.870     -0.32     272.111     1,381
 Funds