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U.S. fund investors, undeterred by bond yields, go on buying spree

Published 01/31/2018, 02:39 PM
Updated 01/31/2018, 02:40 PM
© Reuters.  U.S. fund investors, undeterred by bond yields, go on buying spree
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By Trevor Hunnicutt

NEW YORK (Reuters) - U.S. fund investors ignored rising bond yields and stomped into the markets in the days leading up to an equity selloff this week, Investment Company Institute (ICI) data confirmed on Wednesday.

Some $40 billion rolled into U.S.-based mutual funds and exchange-traded funds (ETFs) during the week ended Jan. 24, the most on ICI's records dating to 2013, with billions moving into both debt and equity markets.

More than $23 billion of that money moved into equities, the most since June, and another $15 billion went to bonds, ICI said. Commodities funds took in $1.4 billion, their best showing since July 2016.

"We've had a lot of cash on the sidelines for so many years, but as we continue to march forward, especially on the equity side of things, you see great optimism not only by institutional investors but retail investors as well," said Wayne Wicker, chief investment officer at ICMA Retirement Corp.

"There seems to be some pressure on individuals that haven't participated to reallocate."

The broad buying comes as investors feed a desire for greater returns using both bonds and stocks. Rising yields during the week hurt bond prices but also attracted new investors seeking a better entry point.

Stock buyers have also been conditioned to "buy the dip," and they are starting to warm up to domestic equities in a serious way after three straight years of profit-taking outflows from such funds.

Domestic equity funds attracted $12.9 billion in the latest week, while world stock funds gathered $10.5 billion, ICI said.

In more recent days, as equities sold off partly in response to rising yields, investors kept buying stocks.

The SPDR S&P 500 ETF (NYSE:SPY) took in a combined $8.4 billion of assets on Monday and Tuesday this week, according to a spokesman for the fund's issuer, even as the Dow Jones Industrial Average registered its biggest two-day drop since September 2016.

Negative returns in many bond funds so far this year have failed to deter investors from piling into debt markets, which have pulled in hundreds of billions of cash from investors since the 2007-2009 global financial crisis.

During the most recent week, taxable bonds pulled in $12.7 billion and municipal bonds pulled in $2.5 billion, according to ICI.

Sales of commodity funds, meanwhile, have started to perk up, after a long slumber, on speculation that inflation is on the rise.

The following table shows estimated ICI flows for mutual funds and ETFs (all figures in million of dollars):

1/24 1/17 1/10 1/3/2018 12/27/2017

Equity 23,395 11,874 17,377 -20,997 4,089

Domestic 12,911 1,720 3,637 -22,058 1,202

World 10,484 10,155 13,739 1,061 2,886

Hybrid 101 -237 -149 -327 -940

Bond 15,122 9,250 18,916 7,566 4,116

Taxable 12,659 6,794 15,760 7,057 4,494

Municipal 2,462 2,457 3,156 509 -378

Commodity 1,412 45 -2 -305 -296

Total 40,029 20,932 36,142 -14,064 6,968

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