By Sam Forgione
NEW YORK, March 21 (Reuters) - U.S.-based stock funds recorded inflows of just $1.9 billion in the latest week as worries over Cyprus’s debt burden disrupted demand for international stocks, data from Thomson Reuters’ Lipper service showed on Thursday.
The drop in demand in the week ended March 20 came after investors poured $11.26 billion into the funds in the previous week to capitalize on the Dow Jones Industrial Average’s nine-day winning streak.
A scant $297.3 million flowed into funds that hold stocks outside of the United States as Cyprus, an island in the 17-nation euro currency bloc, flirted with default on its debt. Over the previous week, the funds had gained $2.54 billion in new money.
The news about Cyprus over the week had a considerable effect on demand for international stock funds, said Jeff Tjornehoj, head of Americas research at Lipper.
Reuters had previously reported outflows of $1.78 billion from non-domestic stock funds over the week, based on Lipper’s original data report. Those outflows would have led to total outflows of $194.7 million from U.S.-based stock funds.
Lipper has since revised its data, however, to show the updated figures.
Exchange-traded funds that hold emerging market stocks were particularly hard hit, as investors redeemed $1.36 billion. Mutual funds that invest in emerging market countries, however, attracted $854 million in new cash.
ETFs are generally believed to represent the investment behavior of institutional investors, while mutual funds are thought to represent the retail investor.
Despite the Dow’s retreat from its record-breaking rally over the latest week, funds that hold U.S. stocks still attracted $1.58 billion in new cash, owing to healthy demand for stock mutual funds.
Mutual funds that hold U.S. stocks raked in $1.6 billion in new money, the most in seven weeks. Investors pulled back, however, from opportunistic positions in U.S. exchange-traded funds and removed $10.3 million. The ETFs attracted $7.3 billion the prior week.
Lipper’s weekly data tracks funds based exclusively in the U.S., but distinguishes these funds based on the countries they invest in.
Over the week, the euro zone struck a deal with Cyprus to provide rescue loans worth 10 billion euros ($13 billion) to the nation, but imposed a levy that would cost those with cash in the island’s banks between 6.75 and 9.9 percent of their money.
Cyprus’s parliament rejected the levy, bringing the nation one step closer to default on its debt. The European Central Bank, however, stepped in and assuaged fears by saying it was committed to providing liquidity within certain limits.
The Dow was up just 0.4 percent over the reporting period, while the benchmark S&P 500 rose 0.27 percent, as worries over crisis rippled through stock markets.
Jitters over Cyprus gave investors reason to seek greater safety in bond funds. Taxable bond funds reaped inflows of $5.2 billion over the weekly period, up from gains of $1.23 billion the previous week.
“Bond funds gave investors a reasonable outlet” over the latest week, Tjornehoj said.
Investment-grade corporate bond funds pulled in $2.35 billion in new money, the most since early November of last year as investors sough higher-quality debt.
Included in those inflows were cash gains of $1.55 billion into corporate loan funds, a weekly record. The securities offer “floating rates” that protect against an inflationary environment, in which interest rates rise.
Riskier high-yield “junk” bond funds, meanwhile, had inflows of just $200.9 million. Those still marked the second week of inflows into the funds in seven weeks.
Money market funds, which are low-risk vehicles that invest in short-term securities, suffered large outflows of $25.54 billion over the period as institutional investors redeemed large sums of cash. Retail investors, however, put over $1 billion into the funds.
The weekly Lipper fund flow data is compiled from reports issued by U.S.-domiciled mutual funds and exchange-traded funds.