U.S.-based bond funds attract $3.3 bln over week - ICI

Wed Jul 2, 2014 3:13pm EDT

By Sam Forgione
    NEW YORK, July 2 (Reuters) - Investors in U.S.-based mutual
funds poured $3.3 billion into bond funds in the week ended June
25 on worries about the U.S. economy and reduced concerns about
rising rates, data from the Investment Company Institute showed
on Wednesday. 
    The new cash into bond funds came after inflows of $4.2
billion over the prior week, which were the biggest in six
weeks. Together, the latest two weeks marked the strongest
two-week run since mid-May, according to data from ICI, a U.S.
mutual fund trade organization. 
    Stock funds posted a small $30 million in net outflows,
marking their second straight week of withdrawals.
    "Concern about higher rates ebbing and the very poor GDP
number in the first quarter tend to make bonds look very
attractive," said Margaret Patel, senior portfolio manager at
Wells Capital Management in Boston. 
    The Commerce Department said June 25 that U.S. gross
domestic product fell at a 2.9 percent annual rate, the sharpest
decline in five years, instead of the 1.0 percent pace it had
reported last month.
    The hefty inflows into bond funds and net outflows from
stock funds underscore how investors have been lured by the
solid performance of bonds this year and see them as a safer
alternative to equities, which remain at record highs. 
    The benchmark Barclays U.S. Aggregate Bond Index has risen
3.7 percent this year through July 1, while the benchmark S&P
500 stock index has risen about 6.8 percent over that
period. 
    Outflows of $1.3 billion from funds that specialize in U.S.
stocks accounted for the net outflows from stock funds and
marked their ninth straight week of withdrawals. Funds that
specialize in non-U.S. stocks attracted $1.3 billion, nearly
unchanged from the prior week. 
    Hybrid funds, which can invest in stocks and fixed income
securities, attracted about $1.3 billion, marking their biggest
inflows since April. 
    Funds that combine stocks and bonds are the most attractive
strategy currently since they balance the desire for income and
low volatility with the possibility that the equity market might
push higher, said Patel of Wells Fargo. 
    The following data shows estimated ICI flows for the past
five weeks (all figures in the millions of dollars):
                        6/25/14    6/18    6/11     6/4     5/28
 Total equity               -30    -923   1,272   2,085   -2,452
    Domestic             -1,312  -2,205  -1,803  -1,161   -2,605
    World                 1,283   1,282   3,075   3,246      152
 Hybrid*                  1,252   1,060   1,159   1,123    1,109
 Total bond               3,266   4,160   2,123     205    2,047
    Taxable               2,704   3,741   1,599    -455    1,242
    Municipal               562     419     524     660      805
 Total                    4,488   4,297   4,554   3,412      703
 *Hybrid funds can invest in stocks and/or fixed income
securities.

 (Reporting by Sam Forgione; Editing by Chizu Nomiyama)
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