February 1, 2018 / 11:46 PM / a year ago

UPDATE 1-U.S. fund investors 'buy the dip' in stock, bond markets

 (Adds data on funds, analyst quote, table, byline)
    By Trevor Hunnicutt
    NEW YORK, Feb 1 (Reuters) - U.S. fund investors cashed out
of cash funds and stocked up on stocks in the latest week,
ignoring a setback in markets and taking on more risk, Lipper
data showed on Thursday.
    Relatively low-risk money-market funds recorded $26 billion
in withdrawals during the week ended Jan. 31, while stock mutual
funds and exchange-traded funds (ETFs) took in a combined $16
billion in new money, according to the research unit.
    "People are believing this is not going to be a melt-down.
They are still talking about a melt-up," said Tom Roseen, head
of research services for Thomson Reuters' Lipper unit. 
    "But is it too late to the party?"
    The Dow Jones Industrial Average turned in its worst
two-day percentage performance since September 2016 on Monday
and Tuesday.
    But the 2 percent decline is minor in light of its 208
percent liftoff - a total return figure that includes dividends
- since the end of 2009.
    Roseen said many of those gains are being validated by
strong quarterly earnings results and upgraded analyst
estimates. Four in five S&P 500 companies reported
fourth-quarter 2017 profits above Wall Street's forecasts,
according to Thomson Reuters I/B/E/S.
    Investor behavior is changing. U.S. fund investors sitting
on strong equity gains sold domestic stocks for three years
straight from 2015 to 2017, for a total of $255 billion in
    So far this year, the funds have taken in nearly $31
billion, according to Lipper.
    Investors cited a dramatic spike in bond yields as one of
the reasons equities pulled back this past week.
    Financial and bank-focused funds pulled in the most cash for
the week, $820 million, which makes sense given that those
companies profit from lending at higher long-term rates.
    Yet even debt funds, which lose money from a rising-rate
scenario, are taking in cash.
    Bond funds pulled in nearly $4 billion during the week,
Lipper said, including the largest inflows since September for
Treasury funds, $1.2 billion.
    Roseen said he is concerned that investors have become
complacent on bonds after years of mostly positive returns.
    "Certainly, we've haven't had this experience in years now
where we've seen interest rates rising. So I think people are
going to have to adjust their mantra," said Roseen.
    "Until now you couldn't go wrong with fixed income."
    The following is a breakdown of the flows for the week,
including mutual funds and ETFs:
 Sector                    Flow Chg  Pct of    Assets     Count
                           ($ blns)  Assets    ($ blns)   
 All Equity Funds          16.158    0.22      7,172.293  12,178
 -Domestic Equities        9.397     0.19      4,891.641  8,686
 -Non-Domestic Equities    6.761     0.29      2,280.653  3,492
 All Taxable Bond Funds    3.611     0.14      2,664.293  6,063
 All Money Market Funds    -25.992   -0.97     2,649.474  1,022
 All Municipal Bond Funds  0.236     0.06      402.963    1,472
 (Reporting by Trevor Hunnicutt; editing by Jennifer Ablan and
Lisa Shumaker)
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