Investors in U.S.-based mutual funds pulled $7.8 billion out of stock funds in the week ended July 2 on fears of an early rate hike from the Federal Reserve, data from the Investment Company Institute showed on Wednesday.
The net outflows from stock funds were the biggest since the start of last year, according to data from ICI, a U.S. mutual fund trade organization. Funds that specialize in U.S. stocks posted $8.9 billion in outflows, while funds that specialize in non-U.S. stocks attracted $1.05 billion, their smallest inflows in five weeks. Bond funds attracted $3 billion in new cash.
"This is a normal flushing out of sentiment," said Anwiti Bahuguna, senior portfolio manager at Columbia Management in Boston.
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"The bullish nature of the market has gotten a bit stretched." Bahuguna said investors fear the impact of an early Fed rate hike on stocks more acutely than they do on bonds, resulting in outflows from stock funds and inflows into bond funds in the latest week.
She said these fears lingered even as the benchmark S&P 500 rose 0.8 percent and held near record highs over the period. She said improving U.S. economic data over the week, including strong private-sector jobs growth for June, led many to believe the Fed could raise interest rates in mid-2015 instead of 2016. The new money into bond funds marked the 21st straight week of inflows.
Bahuguna said that while bond investors are guaranteed to see losses when the Fed raises rates, they have grown accustomed to consistently strong performance from bonds this year. The benchmark Barclays U.S. Aggregate Bond Index has risen 3.6 percent this year through Tuesday, largely on expectations for low inflation and relatively slow growth. Hybrid funds, which can invest in stocks and fixed income securities, attracted $635 million in new cash, marking their smallest inflows in eight weeks. The following table shows estimated ICI flows for the past five weeks (all figures in the millions of dollars):
| 7/2/2014 | 6/25/2014 | 6/18/2014 | 6/11/2014 | 6/4/2014 | |
| Total equity | -7,833 | -91 | -922 | 1,236 | 2,098 |
| Domestic | -8,887 | -1,353 | -2,204 | -1,840 | -1,148 |
| World | 1,054 | 1,262 | 1,282 | 3,075 | 3,246 |
| Hybrid* | 635 | 1,246 | 1,060 | 1,159 | 1,123 |
| Total bond | 2,999 | 3,249 | 4,159 | 2,112 | 188 |
| Taxable | 2,722 | 2,687 | 3,740 | 1,587 | -470 |
| Municipal | 277 | 562 | 419 | 524 | 658 |
| Total | -4,198 | 4,403 | 4,297 | 4,506 | 3,409 |
Source: Reuters
*Hybrid funds can invest in stocks and/or fixed income securities.
—By Reuters