Equity mutual fund investors sit out market rally-Lipper

By Daniel Bases

NEW YORK, Oct. 4 (Reuters) - Mutual fund investors shunned equities for the eighth straight week, pulling nearly $2.4 billion from the market in the week ended Oct. 4, a period where benchmark stock indices advanced, new data shows.

In fact, for 10 out of the last 11 weeks, U.S. domiciled equity mutual funds have had net outflows, according to Lipper, a Thomson Reuters' service.

Even when including exchange traded funds, which are generally believed to represent the investment behavior of institutional investors, equities overall had net outflows of over $2.8 billion during the week.

Mutual funds are thought to reflect retail investment behavior.

In the latest weekly reporting period, the U.S. benchmark Standard & Poor's 500 stock index rose over 1.2 percent


In the last 11 weeks, the index has risen 8.45 percent.

On a price return comparison basis over the last 11 weeks, the Barclays U.S. Aggregate bond index has returned 4.83 percent.

"It was pretty much business as usual this last week. Equity fund investors remain unconvinced of this rally despite a week when the market was up more than 1 percent. They withdrew $2.4 billion for an eighth straight week of withdrawals, the biggest amount in the last two months," said Jeff Tjornehoj, head of Lipper Americas Research.

Taxable bond funds pulled in $2.55 billion, a 13th consecutive week of inflows. However, the volume of fresh cash for the sector was down over 36 percent from the prior period.

Money market funds saw nearly $9 billion in net redemptions.

Tax-free municipal bond funds took in a net $553 million for the week. In the last 52 weeks, the sector that was shunned for much of 2011 has had only two weeks of net outflows.

The risk aversion was not limited to equities, as high yield funds had nearly $900 million in net sales, and marked a second consecutive week of net outflows.

The government mortgage bond category pulled in $659 million when including ETFs. However, much of that inflow could be ascribed to a single fund, which reports on a weekly basis.

The DoubleLine Total Return bond fund

pulled in $468 million in the latest week, bringing assets under management to over $33 billion, according to the Lipper data. The firm is run by bond maven Jeffrey Gundlach, who has scooped up huge amounts of cash since starting DoubleLine in 2010.

"DoubleLine may have skewed the government mortgage category this week. They took in half a billion dollars and that makes up the lion's share of weekly flows. What we are seeing from this is a very product driven environment," said Tjornehoj.

In addition to DoubleLine, Pimco's Total Return Fund

, which is the largest bond fund in the world, and TCW's Total Return Bond Fund

were seen as big buyers of mortgage backed securities before the U.S. Federal Reserve announced its third round of quantitative easing measures.

The so-called QEIII measures mean the Fed will buy $40 billion in government-backed mortgage debt each month until the job market improves significantly.

On Friday, the U.S. reports September unemployment figures with economists polled by Reuters predicting 113,000 new jobs and unemployment rising to 8.2 percent from 8.1 percent in August.

The weekly Lipper fund flow data is compiled from reports issued by U.S.-domiciled mutual funds and exchange-traded funds.

The following is a broad breakdown of the flows for the week, including exchange-traded funds (in $ billions):

Sector Flow Chg % Assets Count ($Bil) Assets ($Bil) All Equity Funds -2.803 -0.10 2,893.274 10,041 Domestic Equities -3.433 -0.16 2,197.797 7,437 Non-Domestic Equities 0.630 0.09 695.477 2,604 All Taxable Bond Funds 2.550 0.17 1,466.041 4,614 All Money Market Funds -8.938 -0.39 2,282.824 1,392

All Municipal Bond Funds 0.553 0.18 313.406 1,334

(Reporting By Daniel Bases; Editing by Richard Chang)

((daniel.bases@thomsonreuters.com)(+1 646 223 6131)(Reuters Messaging: daniel.bases.reuters.com@reuters.net))