U.S. fund investors cut stocks for 2nd straight week -ICI

NEW YORK, April 4 (Reuters) - Investors gashed U.S.-based stock funds, withdrawing billions of dollars for the second straight week, Investment Company Institute (ICI) data showed on Wednesday. Stock mutual and exchange-traded funds (ETFs) in the United States recorded $11.9 billion of withdrawals for the week ended March 28, after $13.8 billion poured out the week prior, the trade group's data showed. The possibility of a trade war between the United States and China added to existing concerns weighing on investors about the possibility that higher inflation and interest rates could derail markets. President Donald Trump's administration signaled on Wednesday that proposed U.S. tariffs on $50 billion in Chinese goods may be a negotiating tactic in the escalating trade fight in which China retaliated by targeting key American imports with similar duties. Fritz Folts, chief investment strategist at 3EDGE Asset Management LP, said his company reduced its exposure to the equity market in the first quarter due to rising short-term interest rates and the fact that markets started demanding a higher premium for corporate bonds. "We are well positioned should equities continue to struggle," he said. "What we need to pay close attention to is the possibility of a 'snap-back' equity rally perhaps in response to a blow-out corporate earnings reporting season. Should that occur then we would need to reconsider perhaps putting equity exposure back on in our strategies." Major companies start to report quarterly earnings this month, with investors expecting strong profit growth. Wall Street analysts expect first-quarter S&P 500 profits to rise by 18 percent over the year before, helped by tax cuts passed in 2017, according to Thomson Reuters I/B/E/S. In the meantime, markets are contending with temperamental sentiment. Domestic stock fund outflows totaled $12.6 billion, according to ICI. International stock funds, which have taken in money for 69 weeks straight, took in just $628 million during the latest week, the least in nearly 15 months. Bond funds attracted $465 million, the lowest amount in six weeks. Commodity funds, which invest in assets including gold, posted $332 million in withdrawals, the most cash pulled out of that area of the market since February 2017. The following table shows estimated ICI flows for mutual funds and ETFs (all figures in million of dollars):

3/28 3/21 3/14 3/7 2/28/2018 Equity -11,926 -13,766 25,210 -6,440 11,714 Domestic -12,554 -17,107 19,062 -10,973 6,399 World 628 3,341 6,148 4,533 5,315 Hybrid -1,311 151 -611 -500 -422 Bond 465 5,315 8,446 1,524 5,181 Taxable 336 4,546 7,743 1,310 5,071 Municipal 129 769 703 214 110 Commodity -332 938 30 210 278 Total -13,104 -7,363 33,074 -5,207 16,751

(Reporting by Trevor Hunnicutt Editing by James Dalgleish)