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U.S. fund investors favor stocks at home over peers abroad

Published 11/01/2017, 03:58 PM
Updated 11/01/2017, 04:00 PM
© Reuters.  U.S. fund investors favor stocks at home over peers abroad
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By Trevor Hunnicutt

NEW YORK (Reuters) - U.S. fund investors are starting to prefer their own market over alternatives abroad, pushing more cash into domestic than international stocks for the second week in a row, Investment Company Institute (ICI) data showed on Wednesday.

Domestic equity funds in the United States pulled in $5.2 billion during the week ended Oct. 25, while international stock funds attracted $4.8 billion, the trade group said.

It is the second week in a row that fund investors have favored their home market and only the second time that has happened since June. Concerned about potentially lofty stock prices in the United States, fund investors have been flocking to bonds and international markets this year.

Yet demand for domestic equity ETFs is perking up, leading to fear of a melt-up, when investors eager to keep up with the market rush in and push prices beyond reasonable levels.

Scott Wren, senior global equity strategist for Wells Fargo (NYSE:WFC) & Co's Investment Institute, said in a note on Wednesday that "there appears to be some 'chasing' occurring in the stock market right now as institutional investors try to keep pace with their equity benchmarks."

Domestic stock ETFs attracted $10.3 billion during the week, the most since June, although that was partially offset by $5.2 billion of mutual fund withdrawals.

While ETFs can hold dozens or hundreds of stocks, they often track indexes, such as the S&P 500, tilted toward companies with bigger market capitalizations. Four companies -Google parent Alphabet (NASDAQ:GOOGL) Inc, Apple Inc (NASDAQ:AAPL), Microsoft Corp (NASDAQ:MSFT) and Facebook Inc (NASDAQ:FB) - make up nearly 12 percent of the S&P 500's weighting.

"The S&P 500 is becoming a little more tech-heavy and that's fine - tech companies are great - but, unlike a utility, tech companies are driven to large part by speculation," said Kevin Quigg, chief strategist for Exponential ETFs.

"Increasingly people are investing in future growth that might never come."

The company's Reverse Cap Weighted U.S. Large Cap ETF, launched on Wednesday, tracks an index holding each of the stocks in the S&P 500 but in inverse proportion to their market capitalization, meaning the big tech companies account for almost none of the fund's performance.

Alternatives to U.S. stocks continue to draw cash. World stock funds and taxable bond funds each netted cash for a 47th straight week, according to ICI.

Overall, U.S.-based bond funds gathered $10.9 billion for the week, while stock funds took in $10 billion.

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