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Brexit vote led to worst withdrawals of 2016 for U.S. mutual funds: ICI

NEW YORK (Reuters) - Investors withdrew the most money to date this year from U.S.-based mutual funds during the week after Britons voted to leave the European Union, the Investment Company Institute data showed on Wednesday.

A British Union flag flies in front of an EU flag during a pro-EU referendum event at Parliament Square in London, Britain June 19, 2016. REUTERS/Neil Hall/File Photo

The $10 billion withdrawn from the funds over seven days amounts to the largest outflow from the funds since investors pulled $15 billion in the last week of 2015, the data showed, when sinking oil prices threatened to sink stocks and force a wave of corporate defaults.

“Ironically, when U.S. equity and international equity mutual funds could have benefited from additional cash as the market sold off, investors became nervous and forced redemptions,” said Todd Rosenbluth, director of exchange-traded and mutual fund research at S&P Global Market Intelligence. “The unknown Brexit impact has caused investor uncertainty and while the U.S. equity market recovered, clarity remains limited.”

The ICI data covers the seven days from June 23, the day of the “Brexit” referendum, through June 29. The fund trade group excludes money-market funds, where investors park cash, from the calculation.

Equity funds recorded nearly $5 billion in net redemptions, according to the data, including $2.7 billion from U.S. funds focused on developed international markets, such as the UK and some other parts of Europe.

That is the worst result for those developed-markets funds since $5.2 billion in outflows during the week ended Aug. 10, 2011, the records show, as the U.S. saw its credit rating downgraded by Standard & Poor’s and a debt crisis convulsed Europe.

Bond funds reported $2.4 billion in net outflows during the week, according to ICI, as continued inflows into highly rated bonds and municipal debt were offset by a $3.4 billion outflow from lower-grade, high-yield funds.

That marks the third week of outflows for the junk bond funds and their largest withdrawals since the week that ended Dec. 16, 2015, the data showed.

While high-yield bonds were marked down in June, they have not fallen as far as where they stood at the beginning of 2016, according to Rosenbluth. Meanwhile, he said government debt and higher-grade bonds typically attract money during broad market selloffs.

Investment-grade bond funds and muni funds attracted their 18th and 39th weeks of inflows during the latest week, respectively, ICI said. Treasury funds attracted just $66 million.

Reporting by Trevor Hunnicutt

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