U.S.-based stock fund outflows biggest since start of 2013 -ICI

Wed Jul 9, 2014 12:57pm EDT

By Sam Forgione
    NEW YORK, July 9 (Reuters) - Investors in U.S.-based mutual
funds pulled $7.8 billion out of stock funds in the week ended
July 2 on fears of an early rate hike from the Federal Reserve,
data from the Investment Company Institute showed on Wednesday. 
    The net outflows from stock funds were the biggest since the
start of last year, according to data from ICI, a U.S. mutual
fund trade organization. 
    Funds that specialize in U.S. stocks posted $8.9 billion in
outflows, while funds that specialize in non-U.S. stocks
attracted $1.05 billion, their smallest inflows in five weeks.
Bond funds attracted $3 billion in new cash. 
    "This is a normal flushing out of sentiment," said Anwiti
Bahuguna, senior portfolio manager at Columbia Management in
Boston. "The bullish nature of the market has gotten a bit
stretched."
    Bahuguna said investors fear the impact of an early Fed rate
hike on stocks more acutely than they do on bonds, resulting in
outflows from stock funds and inflows into bond funds in the
latest week. She said these fears lingered even as the benchmark
S&P 500 rose 0.8 percent and held near record highs over
the period. She said improving U.S. economic data over the week,
including strong private-sector jobs growth for June, led many
to believe the Fed could raise interest rates in mid-2015
instead of 2016. 
    The new money into bond funds marked the 21st straight week
of inflows. Bahuguna said that while bond investors are
guaranteed to see losses when the Fed raises rates, they have
grown accustomed to consistently strong performance from bonds
this year.
    The benchmark Barclays U.S. Aggregate Bond Index has risen
3.6 percent this year through Tuesday, largely on expectations
for low inflation and relatively slow growth. 
    Hybrid funds, which can invest in stocks and fixed income
securities, attracted $635 million in new cash, marking their
smallest inflows in eight weeks. 
    The following table shows estimated ICI flows for the past
five weeks (all figures in the millions of dollars):
                        7/2/14    6/25     6/18    6/11     6/4
 Total equity           -7,833     -91     -922   1,236   2,098
    Domestic            -8,887  -1,353   -2,204  -1,840  -1,148
    World                1,054   1,262    1,282   3,075   3,246
 Hybrid*                   635   1,246    1,060   1,159   1,123
 Total bond              2,999   3,249    4,159   2,112     188
    Taxable              2,722   2,687    3,740   1,587    -470
    Municipal              277     562      419     524     658
 Total                  -4,198   4,403    4,297   4,506   3,409
 *Hybrid funds can invest in stocks and/or fixed income
securities.
   

 (Reporting by Sam Forgione; Editing by Meredith Mazzilli)