UPDATE 2-U.S.-based taxable bond funds attract $4.6 bln -Lipper

Thu Jan 9, 2014 7:14pm EST

By Sam Forgione
    NEW YORK, Jan 9 (Reuters) - Investors in U.S.-based funds
poured $4.6 billion into taxable bond funds in the latest week
while limiting their commitments to stock funds, taking profits
after stellar stock market gains in 2013, data from Thomson
Reuters' Lipper service showed on Thursday.
    Bond fund inflows for the week ended Jan. 8 were the biggest
since last May. Stock funds, meanwhile, attracted $1.9 billion,
their smallest inflows in three weeks, highlighting investors'
reduced appetite for equities after last year's record-breaking
rally.
    "Investors are skeptical that the momentum in the U.S. stock
market we had in 2013 will flow into the new year," Jeff
Tjornehoj, head of Americas research at Lipper, said of the
preference for bonds.
    Funds that hold investment-grade corporate bonds, which are
viewed as safer than high-yield bonds given higher-quality
credit ratings, attracted $3.1 billion in new cash, also the
biggest inflows into the funds since last May.
    Investors may have poured cash into investment-grade bond
funds in an attempt to gain exposure while valuations are
relatively cheap, Tjornehoj said. The Barclays U.S. Corporate
Investment Grade bond index fell 1.5 percent last year, posting
its worst performance since 2008.
    U.S. Federal Reserve Chairman Ben Bernanke triggered a bond
market selloff and outflows from bond funds last year when he
told Congress on May 22 that the central bank could begin
scaling back its monthly bond-buying stimulus later in the year
if the U.S. economy looked strong enough. 
    Among investment-grade bond funds, funds that hold bank
loans attracted over $903 million, marking their strongest
turnout since September. 
    The funds, which are protected from rising interest rates by
their peg to floating-rate benchmarks, attracted sizable inflows
of about $62.8 billion in new cash last year on fears of rising
interest rates. 
    Investors were also willing to take greater risk in bonds,
committing $146 million to funds that hold emerging market debt,
marking the first net inflows to the funds since August. Funds
that hold high-yield junk bonds attracted $642 million,
reversing the prior week's outflows. 
    Investors showed a preference for stocks of companies
outside the United States in the latest week, even as MSCI's
world stock index fell 0.8 percent over the period. Funds that
hold non-U.S. stocks attracted $2.5 billion in new cash, marking
their biggest inflows in six weeks. 
    Emerging market stock funds took in $337 million in their
first inflows in five weeks. Funds that mainly hold U.S. stocks
had outflows of $613 million, marking their first withdrawals in
three weeks. 
    The Standard & Poor's 500 stock index fell 0.5
percent over the weekly period. Investors were cautious, with
some taking profits after the index rallied 29.6 percent in
2013.
    Retail investors accounted for the inflows into stock funds
in the latest week. Stock mutual funds attracted all of the $1.9
billion in net new cash into stock funds, while stock
exchange-traded funds had meager outflows of $2.5 million.
    ETFs are generally believed to represent the investment
behavior of institutional investors, while mutual funds are
thought to represent the retail investor.
    Institutional investors soured on money market funds in the
latest week, resulting in $6.8 billion in net outflows from the
funds, the first outflows in three weeks. The funds, which are
low-risk vehicles that invest in short-term securities, are
viewed as a safe place to park cash. 
    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        1.902      0.05     3,807.985   10,430
 Domestic Equities       -0.613     -0.02    2,847.676   7,652
 Non-Domestic Equities   2.516      0.26     960.309     2,778
 All Taxable Bond Funds  4.640      0.28     1,634.629   5,208
 All Money Market Funds  -6.805     -0.29    2,330.755   1,263
 All Municipal Bond      -0.019     -0.01    272.421     1,398
 Funds
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