US financial and health-care stock funds gain-EPFR

By Daniel Bases

NEW YORK, Aug 8 (Reuters) - Investors increased their cash allocations to U.S. equity funds in the week ended Aug. 6, with a focus on financial and health-care stocks, data from Boston-based EPFR Global showed on Friday.

Net cash inflows into U.S. equity funds were a net $4.38 billion while safe-haven money market fund inflows nearly reached $19 billion. Trading volumes were lower due to summer holidays.

"It looks like it is slipping into the summer pattern of pretty subdued fund flows and people opting for more conservative options," said Cameron Brandt, global markets analyst at EPFR.

Sector funds for financial and health-care stocks outshone their peers while commodity-based funds had cash outflows.

"The bottom of financials is a much sought-after entry point and people have been gambling they've found it quite frequently this year," said Brandt, referring to the beating the financial sector stocks have taken in the global credit crunch.

Financial sector funds took in $1.7 billion in the latest week while oversold health-care/biotech stocks had net cash inflows of $763.3 million.

A sharp decline in commodity prices in recent weeks has led to further redemptions among commodity stock funds. Redemptions totaled $583.9 million in the latest week, during which time the price for a barrel of crude oil fell 6.4 percent and gold lost 2.9 percent in value.

Emerging market stock funds suffered redemptions as well with a net cash outflow of $439 million. The sector is particularly reliant on commodity prices.

DEBT

Emerging market hard currency debt funds lost ground once again, as redemptions left them with a net cash outflow of $66.4 million.

According to David Spegel, ING's global head of emerging markets strategy, outflows from hard currency bond funds are a net $3.7 billion year-to-date, representing 9.3 percent of these types of assets under management.

"That is rather hefty and explains why we have been seeing real-money investors continually increase their cash positions because they are basically insuring against future outflows," Spegel said.

The high cash positions of real money investors, as opposed to speculators, is deceiving, Spegel explained.

"It doesn't necessarily mean they'll have more cash to put to work on new issuance or invest in the market," he said, adding, "If investors are unwilling to draw down on cash and choose to simply rotate out of existing positions, that puts downward pressure on bonds in the secondary market."

However, local currency emerging market bond funds took in a net $119.1 million and blended emerging market bond funds added $199.8 million.