December 29, 2016 / 11:19 PM / 3 years ago

Investors favor stock funds over bonds, reversing 2016 trend

NEW YORK (Reuters) - U.S.-based stock funds pulled in $11.8 billion in the week ended Dec. 28, data from Lipper showed on Thursday, ending 2016 with an enthusiasm for stocks that had been lacking for the better part of the year.

Investors pulled $775 million from taxable bond mutual funds and exchange-traded funds during the same period, marking the third straight week of withdrawals, the data showed.

Stocks have rallied on the potential for lower U.S. corporate taxes and fewer regulations, after the Nov. 8 election gave Republicans who support those policies control of the presidency and the U.S. Congress.

The Russell 2000 has gained more than 14 percent since then, while the Dow Jones Industrial Average flirts with a symbolic 20,000 milestone.

“We probably could see this trend continue through the end of the year and then into the inauguration,” said David Mazza, head of ETF and mutual fund research at State Street Global Advisors. “Then, from there, it’s what will those first 100 days look like.”

President-elect Donald Trump will take office on Jan. 20.

This week’s stock fund inflows and bond withdrawals mark a sharp departure from most of 2016.

U.S.-based stock funds posted $61.8 billion in withdrawals, while bond funds attracted $247.4 billion, according to 2016 data through November, according to the Thomson Reuters Lipper research service. The data show only 12 weeks this year when stock funds netted cash, compared to 32 weeks for taxable bond funds.

Government spending expected under the incoming administration could spark inflation and depress bond prices.

Fund investors have been reluctant to abandon bonds altogether.

“There’s still been some very nice flows into fixed-income ETFs,” Mazza said in an interview before the latest data were released.

Taxable bond ETFs took in $798 million in the latest week, while their mutual fund counterparts posted $1.6 billion in withdrawals.

Mutual funds are seen to reflect retail investors’ moves, while ETFs represent a range of investors, including institutions such as hedge funds.

The following is a breakdown of the flows for the week, including ETFs:

Sector Flow Chg % Assets Assets Count

($blns) ($blns)

All Equity Funds 11.841 0.22 5,339.951 11,501

Domestic Equities 10.844 0.28 3,840.822 8,207

Non-Domestic Equities 0.998 0.07 1,499.129 3,294

All Taxable Bond Funds -0.775 -0.03 2,266.614 5,823

All Money Market Funds 11.165 0.48 2,335.886 1,016

All Municipal Bond Funds -1.637 -0.46 352.510 1,371

Reporting by Trevor Hunnicutt; Editing by Matthew Lewis

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