January 11, 2017 / 6:53 PM / in 7 months

U.S. fund investors, countering trend, favor bonds over stocks: ICI

NEW YORK (Reuters) - Investors injected the most cash into U.S.-based bond funds and pulled the greatest amount of money from stock funds since the Nov. 8 U.S. presidential election during the latest week, Investment Company Institute data showed on Wednesday.

U.S.-based bond funds attracted $2.4 billion in the seven days through Jan. 4, while stock funds posted outflows of $1.6 billion, the trade group said.

The figures represent a sharp departure from the "risk on" fund flows that took root after the elections that gave Republicans control over the U.S. congress and presidency.

In the weeks since, stock funds have taken in tens of billions of dollars on the hopes that the new administration's tax reforms and policies could spark growth.

Investors have sold fixed-income funds on the premise that those policies could ignite bond-harming inflation. Gold funds and municipal bonds have also seen withdrawals since November.

"Investors are being more cautious to start 2017," said Todd Rosenbluth, director of ETF and mutual fund research at CFRA. "While earnings prospects to start the year are relatively strong we expect analyst forecasts to come in. That has resulted in a shift out of U.S. equities and into more conservative taxable bond funds."

Corporate bond funds also offer higher yields that government bond funds. Those payouts can compensate for losses due to rising rates.

Other fixed-income funds invest in floating-rate notes that explicitly pay more interest as rates rise, or "hedged" and "low duration" products also designed to do better in that environment.

Investors cashed out $12.6 billion from stock mutual funds and put $11.1 billion into stock ETFs during the latest week, ICI data showed. Bond mutual funds and ETFs both attracted money during the week.

The following table shows estimated ICI flows, including ETFs (all figures in millions of dollars):

1/4 12/28 12/21 12/14 12/7/2016

Equity -1,572 1,314 814 19,856 5,372

-Domestic -2,067 639 -363 18,571 2,959

-World 495 675 1,178 1,286 2,413

Hybrid -1,956 -1,092 -2,151 -6,661 -1,423

Bond 2,424 1,902 -2,513 -971 -174

-Taxable 4,009 4,642 1,412 2,560 4,208

-Municipal -1,585 -2,740 -3,925 -3,531 -4,381

Commodity -500 -240 -936 -576 -1,724

Total -1,603 1,884 -4,785 11,648 2,052

Reporting by Trevor Hunnicutt; Editing by Alan Crosby

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