NEW YORK (Reuters) - Investors in U.S.-based mutual funds pulled $3.6 billion out of funds that specialize in foreign shares in the latest week, marking their biggest outflows since August 2011, on fears that higher U.S. interest rates could hurt markets outside the United States.
The outflows contributed to total withdrawals of $28.6 billion from funds tracked by the Investment Company Institute (ICI) over the week ended Dec. 16, marking the biggest total outflows in about two and a half years, according to the ICI data released Wednesday. ICI is a U.S. mutual fund trade organization.
Among specific fund categories, investors pulled more than double the amount of cash from funds that specialize in U.S. shares than they did from foreign-focused stock funds, at $7.4 billion, but those withdrawals were only the biggest in two weeks.
Stock funds overall posted about $11.1 billion in withdrawals, marking their biggest outflows in six weeks and their eighth straight week of withdrawals.
Bond funds posted $12 billion in outflows, their biggest withdrawals in nearly four months and their sixth straight week of withdrawals. All of the outflows were from taxable bond funds.
Funds that hold tax-free municipal debt were the only vehicles that attracted cash over the weekly period, at $647 million. That marked their 11th straight week of inflows.
Like foreign-focused stock funds, hybrid funds posted their biggest outflows in over four years, at $5.6 billion. Hybrid funds can invest in stocks and fixed income securities.
The Federal Reserve hiked interest rates for the first time in nearly a decade on Dec. 16, and projections from the central bank’s policymakers indicated that they expect four more hikes next year.
The Fed’s path of rate hikes likely drove investors out of emerging market stock funds partly on fears that emerging market countries will have a tougher time repaying debt denominated in a stronger U.S. dollar, said Alan Lancz, president of investment advisory firm Alan B. Lancz & Associates Inc in Toledo, Ohio.
Higher U.S. interest rates strengthen the dollar by driving investment flows into the United States.
Lancz also said investors likely took profits from bond funds on fears that the Fed’s pace of rate hikes would hurt bond prices in the coming year.
Reporting by Sam Forgione; Editing by Phil Berlowitz