July 25, 2014 / 5:00 PM / in 3 years

UPDATE 1-Stock funds worldwide post $5 bln outflows in latest week -BofA

(Adds additional flows, comments, market performance)

By Sam Forgione

NEW YORK, July 25 (Reuters) - Investors worldwide pulled $5 billion out of stock funds in the week ended July 23 after geopolitical tensions triggered fears of a pullback in global stock indexes, data from a Bank of America Merrill Lynch Global Research report showed on Friday.

The outflows, which were all via exchange-traded funds, marked the first net withdrawals from stock funds in four weeks, data from the report, which also cited data from fund-tracker EPFR Global, showed. U.S.-focused stock funds posted $7.6 billion in outflows, marking their biggest withdrawals in nine weeks.

Emerging market stock funds attracted $200 million in new cash, marking their seventh straight week of inflows, while Japanese stock funds attracted $600 million, marking their fifth straight week of inflows. Analysts have said the Federal Reserve’s continued accommodative stance on monetary policy has boosted confidence in emerging market shares.

The downing of a passenger plane at the Ukraine-Russia border and Israel’s launch of a ground offensive against militants in Gaza on July 17 triggered the benchmark S&P 500 stock index’s biggest one-day percentage decline since April 10 and the CBOE Volatility index’s biggest one-day jump since April 2013.

“The Malaysian airline crash ... along with the ground invasion of Gaza, increased geopolitical risk substantially,” said Bryan Novak, director of trading at Astor Investment Management in Chicago.

He said it was “no surprise” that the outflows were from ETFs. ETFs are funds that hold a basket of securities and trade on an exchange like stocks, and are viewed as a quick way to obtain exposure to various share indexes. ETFs are thought to represent the behavior of institutional investors.

While the tensions ramped up fears of a larger pullback in the S&P 500 from record levels, the index managed a modest 0.3 percent gain for the period, partly on solid U.S. corporate earnings.

European stock funds posted outflows of $100 million, marking their third straight week of outflows. The geopolitical concerns also hit European stocks during the week.

The aversion to risk also showed in outflows of $4.8 billion from riskier high-yield bond funds, which marked their biggest withdrawals since June 2013, according to the report. Bond funds overall attracted $1.9 billion in new cash, marking their fifth straight week of net inflows.

The outflows from high-yield bond funds also reflected concerns about a drop in prices on the debt, Novak of Astor said. The Barclays U.S. Corporate High Yield index, which has risen 5 percent this year through Thursday, has fallen 0.4 percent this month.

Funds that mainly hold safe-haven U.S. Treasuries, meanwhile, attracted $1.8 billion, marking their biggest inflows in nine weeks. U.S. government bonds rallied over the period, with the yield on the benchmark 10-year Treasury note falling about 7 basis points to 2.46 percent on the geopolitical concerns.

Reporting by Sam Forgione; Editing by James Dalgleish and Meredith Mazzilli

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