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U.S. stock funds attract cash but not at the expense of bonds
December 21, 2016 / 5:49 PM / 9 months ago

U.S. stock funds attract cash but not at the expense of bonds

By Trevor Hunnicutt
    NEW YORK, Dec 21 (Reuters) - Investors feasted on stock
exchange-traded funds during the latest week while delaying
their escape from the stressed bond market, data from the
Investment Company Institute showed on Wednesday.
    Some $26.9 billion flooded into U.S.-based stock ETFs during
the seven days through Dec. 14, the trade group said, the
largest figure since the funds set a weekly fundraising record
of $29.4 billion after the Nov. 8 U.S. presidential election.
Stock mutual funds, seen as a proxy for retail investors, posted
$6.7 billion in withdrawals in the latest week. 
    "The world was too pessimistic, now it's become a little too
euphoric," said Joseph Davis, global chief economist for
Vanguard Group. "Sentiment has changed markedly."
    The net $20.2 billion that moved into the stock funds came
as the Dow Jones industrial average has come within
striking distance of the 20,000 milestone for the first time on
hopes that U.S. President-elect Donald Trump's promises to cut
taxes and regulations could lift growth prospects. Trump takes
office Jan. 20.
    Fixed-income markets have reacted with reticence, fearing
bond-eroding interest rate hikes and inflation if government
spending ramps up. The Federal Reserve last week hiked rates for
the first time in a year. 
    Yet demand for bond funds is holding up, with just $894
million in net withdrawals for U.S.-based funds during the
latest week.
    Instead of leaving the category, investors moved money to
different kinds of bonds.
    ICI said investors pulled $3.5 billion from tax-exempt
municipal bond funds, which pay interest that is exempt from
U.S. federal taxes. It marks the seventh straight week of
outflows for munis, whose price is influenced by rates and tax
policy.
    But taxable fixed-income funds, a category that includes
corporate bonds that pay relatively rich yields even as rates
rise, took in $2.6 billion, according to ICI.
    Commodity funds, including those that buy gold, posted
outflows of $576 million in their fifth straight week of
withdrawals, ICI said.
    Gold is highly sensitive to higher rates, which diminish the
appeal of holding an asset that pays no interest and boost the
dollar, in which the metal is priced.
    The following table shows estimated ICI flows, including
ETFs (all figures in millions of dollars):
              12/14    12/7   11/30   11/22  11/16/2016
 Equity      20,245   5,372   2,715   9,174      21,468
 -Domestic   18,955   2,959   2,779   6,927      23,161
 -World       1,291   2,413     -64   2,246      -1,693
 Hybrid      -6,656  -1,423    -984    -792      -1,757
 Bond          -894    -173  -4,088  -1,723      -9,703
 -Taxable     2,620   4,208    -624     792      -5,019
 -Municipal  -3,515  -4,381  -3,463  -2,515      -4,684
 Commodity     -576  -1,724    -854  -1,647      -1,860
 Total       12,119   2,052  -3,211   5,012       8,148
 
 (Reporting by Trevor Hunnicutt; Editing by James Dalgleish)

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