By Sam Forgione
NEW YORK, Oct 12 (Reuters) - U.S. stock funds are starting the fourth quarter on a rough note, recording their second consecutive week of outflows with $2.65 billion in net redemptions, data from EPFR Global showed on Friday.
For much of the year, mom-and-pop investors have been out of the U.S. stock market despite their double-digit returns. Stock market plunges in 2000-02 and 2008-09, the housing bust, a weak economy, the "Flash Crash" of 2010 and a steady stream of Wall Street scandals have helped sour people on stocks.
The outflows in the latest week -- which followed $3.37 billion in outflows a week earlier -- were driven by disappointment surrounding corporate earnings, which will "dominate headlines for the next three to four weeks," said Anwiti Bahuguna, senior portfolio manager at Columbia Management.
Retail investors have taken a net $190 billion out of stock funds so far this year, EPFR Global said, having only added to equity funds in the first week of February.
Most of that money has found its way into bond funds, which have received $131 billion this year from retail investors.
For the latest week alone, EPFR said bond funds worldwide took in $8.22 billion, the second highest amount this year after attracting $8.55 billion in the first week of May. U.S. bond funds pulled in more than half of that sum with $4.68 billion in new cash.
GREAT YIELD CHASE
Investors put new cash back to work into high-yield junk bond funds in the latest week as doubts waned that the asset class had become overvalued.
High-yield "junk" bond funds attracted $952 million in inflows in the week ending Oct. 10 after outflows of $410 million broke a 17-week inflow streak a week earlier. Investors continued to opt for yield in bond funds as opposed to stocks.
Investors said that the previous week's high-yield outflows were in response to the bonds being seen as overvalued and overly risky. They returned to the asset class, however, in search for yield after realizing that the selloff they were anticipating did not happen, said Rick Meckler, president of investment firm LibertyView Capital Management.
The Barclay's Capital Global High-Yield Index rose 14.75 percent. In the week prior to EPFR Global's reporting period, the index rose 65 basis points.
Attraction to yield and strong performance also drove $1.67 billion into emerging market bond funds. The Barclays Capital Global Emerging Markets Index is up 14.88 percent year-to-date, slightly outperforming the high-yield index as well as the roughly 14 percent performance of the benchmark S&P 500 stock index.
"There is a little bit of performance-chasing going on here," said Bahuguna of Columbia Management.
Mortgage-backed bond funds, which the U.S. Federal Reserve has targeted for purchases of $40 billion per month in its latest stimulus program, also stood out with inflows of $666 million, while municipal bond funds raked in $867 million in new cash.
The tax-free advantage of municipal bonds is paying off in light of worries surrounding the "fiscal cliff" of tax increases at the start of next year, added Bahuguna.
(Reporting by Sam Forgione; Editing by Jennifer Ablan and Tim Dobbyn)
((Sam.Forgione@thomsonreuters.com)(+1-646-223-6189))
Keywords: FUNDFLOWS INVESTING/EPFR