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U.S.-based stock funds beat bonds for 4th week as higher rates loom -ICI
December 14, 2016 / 5:21 PM / a year ago

U.S.-based stock funds beat bonds for 4th week as higher rates loom -ICI

By Trevor Hunnicutt
    NEW YORK, Dec 14 (Reuters) - Investors poured $5.4 billion
into U.S.-based stock funds during the latest week, showing more
optimism about equities than bonds for the fourth straight week
ahead of a possible rate hike and the guarantee of a new guard
in Washington.
    Domestic stock funds took in nearly $3 billion during the
week through Dec. 7, while global stock funds added $2.4 billion
in their best weekly sales result since March, according to the
Investment Company Institute trade group.
    "Investor sentiment for U.S. equities to climb higher
remains strong as the stock market remains at or near record
levels and with strong 2017 earnings expectations," said Todd
Rosenbluth, director of ETF and mutual fund research at CFRA.
"With a projected Fed hike today and more to come in 2017,
investors have rotated to equities."
    Projections of government spending under a new Donald Trump
presidential administration have lifted stocks but sparked fears
of bond-harming inflation, and of a "great rotation" from bonds
to stocks. The president-elect takes office next month.
    The U.S. Federal Reserve is also widely expected to hike
rates after a policy meeting Wednesday, a move that could also
hurt bond prices.
    Bond funds, which have seen losses in recent weeks, posted
about $250 million in outflows during the week.
    Investors have now pulled money from municipal bonds for six
straight weeks, which another $4.4 billion in the latest week,
and from commodity funds for four straight weeks. Those funds,
which include those that buy gold, posted $1.7 billion in
withdrawals.
    Gold is highly sensitive to higher rates, which raise the
opportunity cost of holding non-yielding assets, while boosting
the dollar, in which the metal is priced.
    
    ROTATION STALLING?
    Yet there were signs that the "great rotation" trend is
fading.
    The positive result for stocks, for instance, was
exclusively due to a massive $12.7 billion move into stock ETFs,
which helped counteract investors' continuing to pull cash from
mutual funds. Equity mutual funds posted $7.4 billion in
withdrawals.
    Mutual funds with active managers have notched lackluster
performance against relatively low-cost index funds and ETFs
that track the market.
    Meanwhile, bond funds showed signs of resilience. 
    Taxable-bond funds took in $4.1 billion in the seven days
through Dec. 7, the most money since October, as investors
bought floating-rate and high-yield corporate bonds that tend to
hold up better when rates rise. 
    The following table shows estimated ICI flows, including
ETFs (all figures in millions of dollars):
               12/7   11/30   11/22   11/16  11/9/2016
 Equity       5,367   2,715   9,174  21,468     -7,551
 -Domestic    2,954   2,779   6,927  23,161     -6,321
 -World       2,413     -64   2,246  -1,693     -1,230
 Hybrid      -1,423    -984    -792  -1,757     -3,301
 Bond          -250  -4,087  -1,723  -9,703      2,757
 -Taxable     4,131    -623     792  -5,019      2,867
 -Municipal  -4,381  -3,463  -2,515  -4,684       -110
 Commodity   -1,724    -854  -1,647  -1,860        637
 Total        1,970  -3,210   5,012   8,148     -7,458
 
 (Reporting by Trevor Hunnicutt; Editing by Nick Zieminski)

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