NEW YORK Investors in U.S.-based funds pulled $6.51 billion out of stock mutual funds in the week ended Wednesday, marking the biggest weekly outflows this year, on worries the U.S. Federal Reserve could scale back its bond purchases as soon as next week, data from Thomson Reuters' Lipper service showed on Thursday.
The outflows from stock mutual funds in the week ended December 11 marked the biggest withdrawals from the funds since August 2011. Mutual funds are often purchased by retail investors.
"There was some reason for caution," said Jeff Tjornehoj, head of Americas research at Lipper. "No one wants to be left at the top of the market."
The Fed's $85 billion in monthly purchases of Treasuries and agency mortgages have helped boost the Standard & Poor's 500 stock index 24.5 percent this year. The bond-buying program has kept interest rates low, leading investors to seek higher income in riskier assets such as stocks.
The index fell 0.6 percent over Lipper's weekly reporting period, however, after robust U.S. economic data and a budget deal in Washington stoked fears that the Fed will begin reducing the pace of its purchases during its next meeting on December 17-18.
The big outflows from stock mutual funds were even more noticeable since investors have poured cash into the funds almost every week this year. The outflows marked just the third full week of withdrawals from stock mutual funds in 2013.
The dip in the U.S. stock market over the weekly period ahead of the Fed meeting was "the impetus for some retail investors to act before things got worse," said Tjornehoj.
The size of the latest outflows from stock mutual funds also trounced the other two weeks of withdrawals this year, which occurred consecutively in early October and together amounted to just $435 million. Until the latest week, fears of a pullback in Fed stimulus have largely spurred outflows exclusively from stock exchange-traded funds.
While investors pulled cash out of stock mutual funds, stock ETFs attracted $4.7 billion in new cash, marking a big increase from inflows of about $594 million the prior week.
The SPDR S&P 500 ETF was the most popular ETF and attracted $3.2 billion in new cash. ETFs are generally believed to represent the investment behavior of institutional investors.
The inflows into stock ETFs and the outflows from stock mutual funds resulted in net outflows of $1.8 billion from stock funds overall during the weekly period, which marked the largest outflows in five weeks.
Nearly all of the investor withdrawals from stock mutual funds came from mutual funds that specialize in U.S. stocks, underscoring investors' fear that a pullback in Fed stimulus could derail the major rally in U.S. stocks this year.
Overall, ETFs and mutual funds that specialize in U.S. stocks had net outflows of $2.6 billion, also marking the biggest outflows from the funds in five weeks and resulting in the overall outflows from stock funds over the weekly period.
While investors soured on U.S. stocks, they still sought stocks of companies outside the U.S. Mutual funds and ETFs that hold stocks of companies outside the United States attracted about $830 million in net new cash.
Those inflows came even as fears of a Fed pullback disrupted global markets, resulting in the MSCI world equity index declining 0.2 percent for the week.
Investors pulled about $553 million out of emerging market stock funds in the week ended Wednesday. The funds have benefited from the Fed's bond-buying this year and lost fans in the latest week on fears of a Fed pullback, Tjornehoj said.
Taxable bond funds saw outflows of $689 million, marking their biggest outflows in eight weeks. Investors pulled cash out of taxable bond funds on worries that interest rates could spike higher if the Fed reduces its stimulus, said Tjornehoj.
The yield on the benchmark 10-year U.S. Treasury note rose to a three-month high of 2.87 percent on December 5 after strong U.S. jobs and economic growth data reinforced expectations that a Fed cutback was imminent.
Investors still sought funds that hold investment-grade corporate bonds, however, and committed $1.7 billion in new cash. That marked the biggest inflows into the funds in five weeks. Investment-grade bonds are viewed as safer because they sport higher-quality credit ratings.
Riskier high-yield junk bond funds attracted just $16 million in new cash, demonstrating investors' preference for safety but still marking and improvement from small outflows over the previous week.
Investors also flocked to low-risk money market funds, which attracted $2.8 billion, marking the fourth straight week of inflows into these funds. The funds are typically viewed as a safe place to park cash during bouts of volatility.
Investors took refuge in money market funds to protect themselves against a potential downturn in the U.S. stock market next week, Tjornehoj said.
The weekly Lipper fund flow data is compiled from reports issued by U.S.-domiciled mutual funds and exchange-traded funds.
(Reporting by Sam Forgione; Editing by G Crosse, Andrew Hay and Lisa Shumaker)