(Recasts; Adds analyst quote, details on mutual funds and ETFs,
By Trevor Hunnicutt
NEW YORK, Sept 8 U.S. fund investors are
bolstering their bets that the Federal Reserve will bypass an
interest-rate increase later this month by pouring new cash into
corporate bonds and emerging markets as well as U.S. stocks.
Investment-grade bond funds nabbed $2.8 billion during the
week through Sept. 7, Lipper data showed on Thursday, the best
result for those products since the week through July 13 and
adding to a near-unbroken streak of inflows since March.
"The main driver we're seeing out there in the market is the
Fed, and trying to read the Fed," said Pat Keon, research
analyst for Thomson Reuters Lipper. "The general consensus is no
Corporate debt has become a hot commodity amid increasingly
negative bond returns and expectations that the U.S. Federal
Reserve will keep interest rates low for a while. Rising rates
erode bond prices.
Fed officials have sought in recent weeks to revive
expectations of a rate hike this year, perhaps as soon as their
Sept. 20-21 policy meeting, but some weak U.S. economic data
seemed to suggest such a move might be unlikely.
Emerging markets continued to shine, with equity funds
focused on the sector taking in $439 million, their 10th
straight week netting cash. Developing market debt funds added
$293 million, their 11th week of inflows in the past 12.
Higher rates raise borrowing costs for indebted emerging
markets. Those countries often borrow in U.S. dollars, which
often rise in value alongside rates.
U.S. funds focused on domestic shares, like the SPDR S&P 500
ETF, took in $609 million. That contrasts with
international stock funds offered in the United States, which
posted $879 million in outflows.
Overall, U.S.-based taxable bond funds took in $3.4 billion
in cash during the week, Lipper said.
Yet investors did continue to cut exposure to so-called
"bond proxies," relatively high-yielding segments of the stock
market that could see a pullback if rates rise.
Utilities sector funds, for instance, recorded their sixth
straight week of outflows, totaling $333 million. Higher rates
could make it harder for such companies to borrow. At the same
time, yields on bonds could rise, drawing away investors from
such stocks to bonds.
By contrast, technology funds took in $458 million in their
fifth straight week of inflows.
The following is a broad breakdown of the flows for the
week, including ETFs:
Sector Flow Chg % Assets Assets Count
All Equity Funds -0.271 -0.01 5,430.568 11,940
Domestic Equities 0.609 0.02 3,825.283 8,491
Non-Domestic Equities -0.879 -0.06 1,605.285 3,449
All Taxable Bond Funds 3.389 0.15 2,339.357 6,012
All Money Market Funds -17.534 -0.76 2,298.514 1,026
All Municipal Bond Funds 0.986 0.25 395.600 1,407
(Reporting by Trevor Hunnicutt; Editing by Jennifer Ablan and