November 1, 2017 / 7:58 PM / 5 months ago

U.S. fund investors favor stocks at home over peers abroad

    By Trevor Hunnicutt
    NEW YORK, Nov 1 (Reuters) - U.S. fund investors are starting
to prefer their own market over alternatives abroad, pushing
more cash into domestic than international stocks for the second
week in a row, Investment Company Institute (ICI) data showed on
    Domestic equity funds in the United States pulled in $5.2
billion during the week ended Oct. 25, while international stock
funds attracted $4.8 billion, the trade group said.
    It is the second week in a row that fund investors have
favored their home market and only the second time that has
happened since June. Concerned about potentially lofty stock
prices in the United States, fund investors have been flocking
to bonds and international markets this year.
    Yet demand for domestic equity ETFs is perking up, leading
to fear of a melt-up, when investors eager to keep up with the
market rush in and push prices beyond reasonable levels.
    Scott Wren, senior global equity strategist for Wells Fargo
& Co's Investment Institute, said in a note on Wednesday
that "there appears to be some 'chasing' occurring in the stock
market right now as institutional investors try to keep pace
with their equity benchmarks."
    Domestic stock ETFs attracted $10.3 billion during the week,
the most since June, although that was partially offset by $5.2
billion of mutual fund withdrawals.
    While ETFs can hold dozens or hundreds of stocks, they often
track indexes, such as the S&P 500, tilted toward
companies with bigger market capitalizations. Four companies
-Google parent Alphabet Inc, Apple Inc,
Microsoft Corp and Facebook Inc - make up nearly
12 percent of the S&P 500's weighting.
    "The S&P 500 is becoming a little more tech-heavy and that's
fine - tech companies are great - but, unlike a utility, tech
companies are driven to large part by speculation," said Kevin
Quigg, chief strategist for Exponential ETFs.
    "Increasingly people are investing in future growth that
might never come."
    The company's Reverse Cap Weighted U.S. Large Cap ETF
, launched on Wednesday, tracks an index holding each of
the stocks in the S&P 500 but in inverse proportion to
their market capitalization, meaning the big tech companies
account for almost none of the fund's performance.
    Alternatives to U.S. stocks continue to draw cash. World
stock funds and taxable bond funds each netted cash for a 47th
straight week, according to ICI.
    Overall, U.S.-based bond funds gathered $10.9 billion for
the week, while stock funds took in $10 billion.
    The following table shows estimated ICI flows for mutual
funds and ETFs (all figures in millions of dollars):
                10/25   10/18   10/11    10/4  9/27/2017
 Equity         9,999  12,609   3,407  -3,460     -6,792
    Domestic    5,159   6,968  -1,623  -5,878     -9,353
    World       4,840   5,641   5,030   2,418      2,561
 Hybrid          -506    -724    -497  -1,295     -1,077
 Bond          10,854   9,324   9,144  12,385      6,690
    Taxable     9,942   8,383   8,671  12,122      5,947
    Municipal     913     941     473     263        743
 Commodity         98    -428     265    -357        861
 Total         20,445  20,781  12,319   7,273       -317
 (Reporting by Trevor Hunnicutt; Editing by Lisa Shumaker)
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