August 22, 2018 / 4:51 PM / 9 months ago

Wary U.S. fund investors tiptoe into stocks in latest week: ICI

NEW YORK (Reuters) - U.S. fund investors crept into stocks as emerging market sentiment deteriorated, betting on a resolution of discord over Turkey and emerging markets, Investment Company Institute (ICI) data for the latest week showed on Wednesday.

Stock mutual funds and exchange-traded funds (ETFs) based in the United States netted $779 million in the week ended Aug. 15, ICI said, as the Turkish lira plunged to an all-time low and investors fretted about possible contagion in emerging markets.

It was the first week of positive sales for the funds in three weeks. Funds focused on international shares took in $767 million during the period, while domestic equity funds collected just $12 million, the trade group’s data showed.

During the week, markets punished Turkish President Tayyip Erdogan’s refusal to adopt an orthodox response to strong inflation - raising interest rates - by selling lira.

While the Turkish market is marginal within global financial markets, stress there could spread as investors whose bets soured in that market sell assets from South Africa to Argentina. Those countries could struggle to repay debt denominated in dollars as their own currencies weaken. The biggest emerging market, China, is already under pressure from a trade dispute with the United States.

Yet hunkering down in domestic stocks may not solve all of an investor’s problems.

Lamar Villere, a portfolio manager at St. Denis J. Villere & Co LLC, said the U.S. economy is strong and he is impressed with the financial results of almost exclusively domestic companies his mutual funds hold.

But he is holding a higher level of cash than normal and said there are not many bargains to be found.

“We’d like to put some to work, but we don’t need to,” said Villere, who is based in New Orleans. “There’s a lot of cheap stocks that should be cheap and a lot of stocks that are too expensive.”

During the week, U.S.-based bond funds attracted $1.7 billion, marking a 26th straight week of strong demand.

Funds invested in commodities bled $674 million. The dollar’s 6 percent gain over the past half-year against its major trading partners have hurt demand for gold, which is priced in the greenback.

The following table shows estimated ICI flows for mutual funds and ETFs (all figures in millions of dollars):

  8/15 8/8 8/1 7/25 7/18/2018

Equity 779 -1,667 -3,011 419 1,494

Domestic 12 -3,408 -2,130 524 1,300

World 767 1,741 -881 -105 195

Hybrid -1,479 -1,447 -2,268 -1,165 -1,829

Bond 1,675 6,857 5,844 4,417 8,660

Taxable 1,013 6,135 5,681 3,817 6,894

Municipal 662 723 163 600 1,765

Commodity -674 -450 -101 164 -308

Total 301 3,292 463 3,835 8,016

Reporting by Trevor Hunnicutt; Editing by Susan Thomas

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