UPDATE 1-U.S.-based emerging markets stock funds post $2.6 bln outflow - Lipper

Thu Jan 30, 2014 7:08pm EST

By Sam Forgione and Jennifer Ablan
    Jan 30 (Reuters) - Investors in funds based in the United
States pulled $2.6 billion from emerging markets stock funds in
the week ended Jan. 29, marking their biggest net outflow since
February 2011, data from Thomson Reuters' Lipper service showed
on Thursday.
    The turmoil in emerging markets also triggered outflows from
U.S.-based emerging market bond funds of $606 million in the
latest week, for the third consecutive week, Lipper added. 
    Emerging markets have felt the heat since the U.S. Federal
Reserve said it would begin to trim its stimulus, a program that
has injected more than $3 trillion into the U.S. economy and
world markets since the onset of the financial crisis.
    "Investors are definitely in an outflow mode right now with
respect to emerging markets, and I don't think that pattern is
going to change next week," said Jeff Tjornehoj, head of Lipper
Americas Research. "There is simply too much volatility in the
market, and after incurring more losses this week, there is not
much on the horizon left for investor optimism."
    Investors in exchange-traded funds are thought to represent
the institutional investor, including hedge funds. 
    Turkey's domestic problems, along with those of Argentina,
Ukraine and Thailand, didn't cause much concern for
international investors when the world was awash in cheap money.
    On Tuesday, Turkey's central bank raised interest rates
sharply to fight rising inflation and stop the lira's steep
drop. After news of the rate increase, the lira jumped and U.S.
stock index futures rallied. That relief, though, was
short-lived. By Wednesday, the lira's strong gains had been
erased in a selloff - and fear returned to emerging markets,
spilling over to help cause a rout in global stocks. 
    Tjornehoj noted that it was the ETF investors who yanked the
majority of their money from emerging markets equities, though
"retail investors have been committing less to the sector. The
headline risk is dominating the asset class."
    On the other end of the spectrum, it wasn't a bad week for
developed markets. 
    Investors in funds based in the United States poured $10.24
billion into stock mutual funds in the week ended Jan. 29,
marking the sixth straight week of net new cash added to the
funds, preliminary data from Lipper showed.
    Lipper said a transfer of assets totaling $5.8 billion from
a non-registered product to a mutual fund called the GMO US Core
Equity fund caused stock mutual fund assets to balloon
by $10.24 billion. Since Lipper doesn't track non-registered
product fund flows, "t looks like a flow into the mutual fund
industry in our view," Tjornehoj said.
    Taxable bond funds attracted $1.1 billion in new cash,
marking their fourth straight week of inflows. Low-risk money
market funds posted outflows of $5.8 billion after inflows of
$12.3 billion in new cash the previous week.
    
    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    -1.348          -0.03     3,781.167  10,593
 Domestic Equities   -2.287          -0.08     2,823.496  7,788
 Non-Domestic        0.939           0.09      957.672    2,805
 Equities                                                 
 All Taxable Bond    1.104           0.07      1,667.088  5,298
 Funds                                                    
 All Money Market    -5.827          -0.24     2,409.487  1,327
 Funds                                                    
 All Municipal Bond  0.334           0.12      276.662    1,413
 Funds
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