By Sam Forgione
NEW YORK, March 1 Fund investors worldwide
soured on emerging market stocks for the first time in over five
months and opted for U.S. bonds in the latest week as global
concerns shook markets, data from EPFR Global showed on Friday.
Investors pulled $1.07 billion from emerging market stock
funds in the week ended Feb. 27, the fund-tracking firm said.
Those were the first outflows from the funds since early
September, the firm added.
Demand for stock funds worldwide weakened somewhat in
February following strong inflows in January. Stock funds had
inflows of $18.15 billion in the four weeks of February, far
lower than inflows of $47.8 billion in January.
The appetite, or lack thereof, for equities serves as an
important barometer of investor confidence and how people feel
about the state of economic growth.
"The U.S. has slowed down, the euro zone is in a recession,
and I think that has created a lot of caution," said Alan Gayle,
senior investment strategist at RidgeWorth Investments.
Funds that hold U.S. stocks also saw a drop in demand as
investors redeemed $411 million from the funds. That marked a
reversal from the prior week's inflows of $2.24 billion.
The outflows from emerging market and U.S. stock funds were
a result of institutional investors yanking money out of ETFs,
said Cameron Brandt, director of research at EPFR Global.
Mom-and-pop investors did, however, pull a minor amount of
cash from all stock funds for the first time in seven weeks,
The pullback from emerging market and U.S. stock funds led
to net inflows of just $1.2 billion into stock funds worldwide,
the weakest turnout for the funds since investors redeemed in
mid-November of last year.
Funds that hold a variety of global stocks took in over $2
billion in new cash, accounting for most of the net inflows into
stock funds. Funds that hold Japanese stocks also had a strong
week with inflows of $625 million.
Investors also pulled $4.23 billion from commodities sector
funds. Gold and precious metals funds accounted for over $4
billion of those outflows, with a major chunk leaving a single
Brandt of EPFR Global was not immediately available to
comment on which gold ETF had outflows. The world's largest
gold-backed ETF is the SPDR Gold Trust.
Billionaire hedge fund manager John Paulson, the founder and
head of Paulson & Co., is the largest stakeholder in the fund,
according to regulatory filings as of the fourth quarter of
2012. Paulson's holding in the fund topped 5 percent.
A spokesman for Paulson's firm did not return a request for
comment on the selloff in the unidentified gold ETF.
The benchmark S&P 500 rose just 0.27 percent over the
reporting period. Federal Reserve Chairman Ben Bernanke
reassured investors that the central bank would continue its
monetary stimulus program on Feb. 26, leading to a jump in U.S.
Uncertainty surrounding the outcome of the Italian elections
stoked concerns over the euro zone debt crisis, however, while
U.S. President Barack Obama and Congress remained deadlocked
over how to prevent $85 billion in automatic government spending
cuts from taking effect on March 1.
The yield on the benchmark 10-year Treasury fell
to 1.98 percent on Feb. 21 after hovering around 2 percent
following reports of a downturn in euro zone business activity.
U.S. unemployment and manufacturing data also pointed to slow
The safe-haven bond has since gained more demand. Its yield
stood at 1.85 percent in intraday trading Friday as impending
U.S. budget cuts and concern about economic weakness in Europe
led investors to seek the U.S. debt.
Despite political and economic concerns in the euro zone,
funds that hold European stocks had inflows of $164 million over
Bond funds benefited from the light demand for stock funds.
Funds that hold U.S. bonds attracted $3 billion in new cash, the
most since mid-January and accounting for a large chunk of the
$4.68 billion into bond funds worldwide.
"I don't think anybody expects interest rates to go up that
quickly, and people are comfortable in bond funds," said Rex
Macey, chief investment officer at Wilmington Trust Investment
Like their stock counterparts, emerging market bond funds
saw a drop in demand with just $684 million flowing into the
funds, the least since late December of last year.
High-yield "junk" bond funds attracted $287 million in new
money, up from the prior week's inflows of $135 million and
marking the second straight week of inflows into the funds. The
recent inflows marked a rebound from outflows in the first two
weeks of February.