October 26, 2017 / 10:31 PM / a year ago

Volatility fails to scare investors in U.S. stock, bond funds: Lipper

NEW YORK (Reuters) - Investors endured jolts to both stocks and bonds, pouring even more cash into funds tracking both markets during the latest week, according to Lipper data released on Thursday.

U.S.-based stock funds pulled in $4.7 billion and taxable-bond funds attracted $3.7 billion during the week ended Oct. 25, according to the research service.

Rates on U.S. government debt and U.S. stock volatility both spiked in recent days as corporations reported third-quarter earnings, speculation swirled over who will lead the Federal Reserve and debate over a tax plan in Washington.

The CBOE Volatility Index, an options-market gauge of expected price swings, rose as high as 13.24 during trading this week, the most since early September. And yields on the 10-year U.S. Treasury note leapt to 2.45 on Thursday from 2.06 in early September. Bond yields move inversely to their prices.

The moves in both debt and equities added a frisson to calm-trading markets. Yet fund investors continued to put cash in stock and taxable-bond funds, despite the average fund in both category losing value during for the week, according to Lipper.

Tom Roseen, head of research services for Thomson Reuters’ Lipper unit, said many mom-and-pop investors remain concerned about lofty equity valuations and are keeping money in high-yielding debt funds.

But he said stock investors are seeing strong corporate profits validating double-digit year-to-date price gains. Nearly three quarters of the S&P 500 companies that have already disclosed third-quarter earnings reported profits surpassing analyst expectations, according to Thomson Reuters I/B/E/S. The index has gained 16 percent so far this year, including dividends.

“People pretty much kept the pedal to the medal,” said Roseen. “How much longer can we go up? We need a pullback. We need a breather.”

Domestic-focused stock funds pulled in $2.2 billion, the most since August. That included a $706 million inflow for funds focused on the finance sector, the data showed. Banks and insurers are seen increasing their earnings as rates rise.

Lipper said funds focused on Japanese stocks attracted $365 million, the most since June, as Prime Minister Shinzo Abe’s ruling bloc scored a big win in Sunday’s election. Abe is expected to press growth-oriented policies, including a plan to push businesses to use their huge cash-piles to boost salaries.

Reporting by Trevor Hunnicutt; editing by Grant McCool

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