January 10, 2018 / 7:10 PM / 7 months ago

Investors strip most cash in four years from U.S. domestic stock funds

NEW YORK (Reuters) - Investors are slimming down equity stakes bloated by a nearly decade-long bull market, withdrawing $22 billion from U.S. domestic stock funds in a single week, Investment Company Institute (ICI) data showed on Wednesday.

The withdrawal, during the holiday-shortened week ended Jan. 3, marked the largest weekly retreat from the U.S.-based domestic stock funds in nearly four years, according to the trade group.

A growing chorus of investors, including GMO LLC co-founder Jeremy Grantham, are saying the market is in a “melt-up,” as prices start to be driven up irrationally by investors fearing they are missing out on strong profits. The S&P 500 has more than tripled since its 2009 low.

“The current bull market was born on pessimism, grew on skepticism, and, after a huge run higher, is moving toward a general feeling of optimism,” said Scott Wren, senior global equity strategist at Wells Fargo & Co’s Investment Institute, in a note on Wednesday.

“We do not believe the bull market is over. But we are closely watching, in addition to the fundamentals, investor sentiment. Because the eventual euphoria, which will come at some point, will likely be at the top.”

Funds focused on equities outside the United States have largely been spared withdrawals, attracting cash every week last year while domestic-focused funds ended the year having posted outflows.

But in the latest week, inflows to world stock funds weakened to $1.1 billion, the lowest since last January, ICI said. The group’s data covers mutual funds and exchange-traded funds (ETFs) based in the United States.

Demand for bonds remained strong despite a yield spike in December, and again this week, that pushed long-dated Treasuries’ prices down sharply.

U.S.-based bond fund net inflows rose to $7.6 billion during the latest week, the largest in 10 weeks. The ICI data does not include fund inflows or withdrawals that occurred during the most recent long-bond sell-off.

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

1/3 12/27 12/20 12/13 12/6/17

Equity -21,009 4,099 -1,584 6,809 8,621

Domestic -22,065 1,208 -9,550 5,347 5,962

World 1,056 2,892 7,966 1,463 2,659

Hybrid -327 -940 -2,122 -1,415 -2,139

Bond 7,570 4,109 1,599 5,015 6,160

Taxable 7,056 4,487 1,512 4,943 6,471

Municipal 515 -378 87 72 -311

Commodity -305 -296 -434 5 421

Total -14,071 6,972 -2,541 10,414 13,064

Reporting by Trevor Hunnicutt; Editing by Tom Brown

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