By Sam Forgione
NEW YORK, June 21 Investors worldwide poured
$4.8 billion into stock funds in the latest week, reversing the
prior week's outflows, on expectations that the U.S. Federal
Reserve would keep its bond-buying steady, data from EPFR Global
showed on Friday.
The inflows into stock funds in the week ended June 19 came
largely ahead of Fed Chairman Ben Bernanke's comments on
Wednesday that the central bank could reduce its bond-buying
later this year. The inflows reversed outflows of $8.51 billion
the previous week, and were the first cash gains in four weeks,
fund-tracking firm EPFR Global said.
"There was a widespread expectation that Bernanke would give
out a more dovish statement," said Michael Jones, chief
investment officer of RiverFront Investment Group in Richmond,
The S&P 500 rose 1 percent over the week on
expectations that the Fed would keep its $85 billion in monthly
purchases of Treasuries and agency mortgages unchanged. Bernanke
disappointed stock markets when he said at a news conference on
Wednesday that the central bank would reduce its stimulus later
this year if the economy is strong enough.
The Fed's stimulus underpinned a 17 percent rise in the S&P
500 from the beginning of the year through May 21. U.S. stocks
turned more volatile when Bernanke said on May 22 that the Fed
could reduce its bond-buying later this year if the U.S. economy
looked set to maintain momentum.
Funds that hold Japanese stocks gained $657 million in new
cash, EPFR Global said, despite the slide in Japanese stocks
since hitting their peak on May 23. Japan's Nikkei average fell
8.6 percent between May 23 and the end of EPFR Global's most
recent reporting period.
The new demand for stocks did not apply to funds that hold
emerging market stocks, which suffered outflows of over $3
billion, according to EPFR Global. The MSCI Emerging Markets
Index fell 0.8 percent over the reporting period.
Investors are turning doubtful on emerging market assets in
anticipation of the Fed ultimately winding down its stimulus,
said Cameron Brandt, director of research at EPFR Global. Brandt
said that investors see less upside in emerging market assets
without the Fed's stimulus.
While stock funds overall saw new demand, bond funds
worldwide suffered outflows of $7.48 billion over the week,
according to EPFR Global. That amount was, however, roughly half
the previous week's record outflows of $14.45 billion.
High-yield junk bond funds saw continued outflows of roughly
$2.3 billion in the latest week, said Bank of America Merrill
Lynch, citing data from fund-tracking firm EPFR Global.
Those outflows marked an improvement from the prior week,
however, when investors pulled $6.48 billion out of the funds,
the second most since EPFR began tracking the funds in May 2003.
Prices on high-yield debt have dropped since Bernanke's
statements in May. The yield-to-worst on the Barclays U.S.
Corporate High Yield Index is currently 6.54 percent, far above
its record low of 4.97 percent on May 7. The yield-to-worst is
the lowest potential yield on a bond without the issuer
defaulting. Prices fall as yields rise.
Along with emerging market stock funds, funds that hold
emerging market bonds suffered outflows of $2.6 billion in the
latest week, their second highest on record according to Bank of
America Merrill Lynch.
The selloff in bonds and outflows from bond funds stem from
fears of rising interest rates, said Robert Stein, global head
of asset management at Astor Asset Management. Stein said,
however, that bonds have become attractive at current levels.
"They've backed up to a point where it's gotten overdone,"
Stein said on the bond market selloff in the wake of Bernanke's
statements last month.
The Fed's stimulus has kept interest rates low, leading
investors into riskier assets such as stocks. An end to the
Fed's stimulus program would push interest rates higher and
weaken the value of bonds. The bond market has seen a broad
selloff in the past month in anticipation of this effect.
Money market funds, which are low-risk vehicles that hold
short-term securities, suffered outflows of more than $25
billion in the latest week, the most since the third week of
February according to EPFR Global. Brandt said that investors
pulled cash out of money market funds on expectations that the
Fed would continue its bond-buying, which would encourage
investments in assets such as stocks.
Funds that hold bank loans remained a refuge for investors
and attracted $1.5 billion in new cash in the latest week after
pulling in $1.4 billion the previous week. Bank loans are
protected from rising interest rates by being pegged to