By Sam Forgione
June 27 Investors in funds based in the United
States pulled $8.62 billion out of taxable bond funds in the
latest week, marking the first four-week streak of outflows from
the funds since 2008, data from Thomson Reuters' Lipper service
showed on Thursday.
The outflows from taxable bond funds over the week ended
June 26 were up from outflows of $507.9 million the prior week.
Stock funds, meanwhile, had outflows of $6.8 billion over the
reporting period, the most since late April.
The outflows from bond and stock funds came as fears
persisted that the U.S. Federal Reserve might reduce its $85
billion in monthly purchases of Treasuries and agency-mortgage
securities. The Fed's purchases have kept interest rates low and
helped underpin the rally in U.S. stocks this year.
"It's a culmination of concerns about what the outcome will
be when tapering goes into effect," said Lipper analyst Matthew
Lemieux of the outflows.
Taxable bond mutual funds in particular saw a plunge in
demand in the latest week, as investors pulled $6.43 billion
out, the most since October 2008. Taxable bond exchange-traded
funds, meanwhile, saw outflows of $2.19 billion, also a drop in
demand after gaining $111.24 million in new cash the prior week.
ETFs are generally believed to represent the investment
behavior of institutional investors, while mutual funds are
thought to represent the retail investor.
The yield on the benchmark 10-year U.S. Treasury note rose
19 basis points to 2.54 percent over the reporting period on
fears that the Fed will scale back its bond-buying. As yields
rise, prices fall.
Funds that hold inflation-protected bonds, including
Treasury Inflation-Protected Securities, or TIPS, suffered
record outflows of $908.15 million in the latest week. The
outflows were up from $810.6 million the prior week. Investors
have pulled $9.93 billion from the funds so far this year,
putting them on pace to set a record for annual outflows.
Many investors have said that inflation is not an imminent
concern. Jeffrey Gundlach, chief executive of DoubleLine
Capital, said on Thursday in an investor webcast that "there is
no message of inflation in the market. Gold looks like death."
Commodities and precious metals funds, which mainly invest
in gold futures, had outflows of $1.57 billion in the latest
week, up from $464.7 million in outflows the previous week. Gold
is widely viewed as an inflation hedge. The price of spot gold
fell 9.3 percent over the week to its lowest in nearly three
years on fears that the Fed would rein in its monetary policy.
Municipal bond funds also suffered $4.53 billion in
outflows, the largest on a record going back to 1992 and more
than double the $2.22 billion of outflows from the prior week.
Investors pulled cash out of municipal debt funds as a
result of continued rising interest rates on government bonds,
said Lemieux of Lipper. He also said investors may be worried
that rising interest rates will make it more difficult for
municipalities to finance their debt.
Investment-grade corporate bond funds were also hit hard in
the latest week. Investors pulled $2.3 billion from the funds,
the most since October of 2008. Funds that hold riskier
high-yield bonds, meanwhile, had outflows of $3.12 billion in
the latest week, up sharply from outflows of $332.9 million the
Funds that hold bank loans remained a refuge for investors,
who poured about $1.08 billion into the funds, down modestly
from inflows of $1.4 billion the prior week. Bank loans are
protected from rising interest rates by being pegged to
Volatility increased in the latest week after Fed Chairman
Ben Bernanke said on June 19 that the central bank could reduce
its stimulus later this year, and end it altogether in mid-2014,
if the economy looked strong enough. The S&P 500 fell 1.6
percent over the latest week.
The outflows of $6.8 billion from stock funds reversed
inflows of $4.71 billion the prior week. The latest outflows
were on account of investors pulling $8.36 billion from stock
ETFs. The SPDR S&P 500 ETF Trust in particular had big
outflows of $3.57 billion. Stock mutual funds, however, had
inflows of $1.56 billion, the most in five weeks.
Stock mutual funds have seen inflows every week this year.
Retail investors have decided to remain in stock funds in recent
weeks to avoid the credit selloff, said Lemieux of Lipper.
Funds that hold Japanese stocks suffered outflows of $124.7
million, their fourth consecutive week of outflows. Investors
have soured on Japanese stock funds after a record 28-week
streak of inflows.
The Bank of Japan announced on April 4 that it would inject
$1.4 trillion into the nation's economy in less than two years
to fight deflation, mainly through purchases of long-term
Japanese government bonds. The stimulus helped boost Japan's
Nikkei index 50 percent this year through May 22 before plunging
over 15 percent this month in the wake of Bernanke's remarks.
The weekly Lipper fund flow data is compiled from reports
issued by U.S.-domiciled mutual funds and exchange-traded funds.
The following is a broad breakdown of the flows for the
week, including exchange-traded funds (in $ billions):
Sector Flow Chg % Assets Count
($Bil) Assets ($Bil)
All Equity Funds -6.800 -0.20 3,244.143 10,285
Domestic Equities -6.357 -0.25 2,449.442 7,586
Non-Domestic Equities -0.443 -0.05 794.701 2,699
All Taxable Bond Funds -8.622 -0.54 1,557.678 4,930
All Money Market Funds 5.007 0.22 2,323.354 1,353
All Municipal Bond Funds -4.533 -1.44 302.789 1,390