Mutual funds and ETF flows send market conflicting signals

NEW YORK (Reuters) - Investors in U.S.-based exchange-traded funds charged back into the markets in force over the last week, Lipper data for the weekly period ended Wednesday showed, delivering stock ETFs $3.9 billion in their largest inflow since April.

But U.S. fund investors are sending mixed signals about the markets’ direction. ETF investors only softened the blow of a long-running trend that has seen investors pull money from stock mutual funds most weeks in favor of bonds.

Mutual fund investors pulled another $4.7 billion from stock funds this week, their 12th straight week of cash withdrawals.

“There’s money on the sidelines,” said Pat Keon, research analyst for Thomson Reuters Lipper. “We’re getting mixed messages.”

Fund investors have been grappling with statements from central-bank policymakers that tighter monetary policy could come as soon as this summer, a statement the markets took in stride.

Since Federal Reserve chief Janet Yellen said last Friday that the central bank should “probably” raise rates “in the coming months,” the S&P 500 index has gained a modest 0.3 percent.

Top investors are not sold. Janus Capital Group Inc investor Bill Gross on Thursday said the historic returns that investors have reaped for over four decades are over.

His former employer, Pacific Investment Management Co, on Wednesday warned that unconventional monetary policies might not sustain growth.

And BlackRock Inc, the world’s largest asset manager, sliced its outlook on developed-market stocks even as it said they would likely perform better than bonds.

“The underlying fundamentals are horrible,” said Bob Smith, president of Sage Advisory, an investor who uses ETFs. “Why would I want to give up on a defensive position now?”

Overall, investors pulled $776 million from U.S.-based stock funds in the week that ended June 1, Lipper data showed.

Taxable bond funds suffered $497 million in outflows during the same period, the research service said, after two straight weeks taking money in. Relatively low-risk money-market funds attracted $7.7 billion, marking their sixth straight week netting new cash.

Nonetheless, investment-grade bond funds attracted $287 million, their 13th straight week of new cash. And emerging-market equity funds took in $125 million after three straight weeks of outflows, Lipper data showed.

European stock funds took in $52 million, their first inflows since late January, according to Lipper, despite fears ahead of a June 23 referendum on whether Britain should remain in European Union.

The following is a broad breakdown of the flows for the week, including ETFs (in $ billions):

Sector Flow Chg % Assets Assets Count

($Bil) ($Bil)

All Equity Funds -0.776 -0.02 5,172.667 11,975

Domestic Equities -0.679 -0.02 3,678.815 8,509

Non-Domestic Equities -0.097 -0.01 1,493.852 3,466

All Taxable Bond Funds -0.497 -0.02 2,239.953 6,075

All Money Market Funds 7.652 0.32 2,364.781 1,122

All Municipal Bond Funds 0.473 0.13 374.727 1,411

Reporting by Trevor Hunnicutt; Editing by Jennifer Ablan and Cynthia Osterman