August 3, 2012 / 9:55 PM / 5 years ago

Policy meeting suspense spurs flight to bonds-EPFR

NEW YORK, Aug 3 (Reuters) - Lower risk U.S. bond funds once again reigned supreme on growing concerns over policy actions, or lack thereof, to bolster faltering economies, data from EPFR Global showed on Friday.

Investors played defense ahead of Federal Reserve and European Central Bank meetings this week.

In the most recent reporting period ended Aug. 1, U.S. bond funds took in more than $4.07 billion in new money, while actively managed U.S. stock mutual funds had $2.7 billion in redemptions.

It was the 39th straight week that investors put more money into U.S. bond funds than they took out, said Cameron Brandt, director of research for mutual fund research firm EPFR.

“The uncertainty within Europe created that flight to safety in the U.S. bond market” in the latest week, said Robert Francello, head of equity trading for Apex Capital in San Francisco.

On Thursday, the ECB indicated that it might provide additional economic stimulus, but it might take weeks to materialize.

Adding to that was German Economy Minister Philipp Roesler’s opposition to granting a banking license to the euro zone’s new bailout fund, said Oliver Pursche, president of Gary Goldberg Financial Services in Suffern, New York.

“Investors are more apt to believe negative comments coming out of Germany than positive comments coming out of the ECB,” Pursche said.

Fed officials held off more economic stimulus for now, but gave a strong signal that they would act if there was further deterioration of the U.S. labor market.

High-yield “junk” bonds attracted net new money but not as much as the previous week. Junk bond funds absorbed $1.43 billion in new money, down from the previous week’s inflows of $2.21 billion.

The $2.7 billion taken out of actively-managed U.S. stock funds was an eight-week high, according to EPFR Global’s Brandt.

TIMING IS EVERYTHING

The S&P 500 rose 2.78 percent during the week, while the MSCI world equity index was up 4.05 percent. The reporting period, which ended on Wednesday, does not include Friday’s report of a 163,000 increase in nonfarm payrolls in July and an uptick in the unemployment rate to 8.3 percent.

Despite market gains during the period, the volume of selloffs in the stock market continue to outpace that of buying, said Pursche.

U.S. equity funds still had inflows of $4.92 billion, but they were on account of institutional investor moves into exchange-traded funds, EPFR Global’s Brandt said.

European funds also took a beating in the run-up to the central bank meeting, with European stock funds losing $867 million, the most in seven weeks, and European bond funds losing $263 million.

Money market funds saw hefty outflows of $11.72 billion compared with inflows of $7.96 billion the previous week.

EMERGING MARKETS, SECTOR-SPECIFIC FUNDS

Emerging market stock funds attracted $1.52 billion in new money, a 24-week high, according to EPFR Global’s Brandt.

“The biggest headwinds that emerging markets would typically have aren’t there,” said Pursche, adding that projected emerging market growth of six percent or more outpaces that of the United States and Europe.

Emerging market bond funds attracted $783 million, nearly doubling the previous week’s inflows of $392 million.

Most sector-specific equity funds reversed outflows from the previous week, with commodities funds gaining $564 million in inflows compared with outflows of $815 million the previous week.

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