January 31, 2018 / 7:22 PM / a year ago

U.S. fund investors, undeterred by bond yields, go on buying spree

    By Trevor Hunnicutt
    NEW YORK, Jan 31 (Reuters) - U.S. fund investors ignored
rising bond yields and stomped into the markets in the days
leading up to an equity selloff this week, Investment Company
Institute (ICI) data confirmed on Wednesday.
    Some $40 billion rolled into U.S.-based mutual funds and
exchange-traded funds (ETFs) during the week ended Jan. 24, the
most on ICI's records dating to 2013, with billions moving into
both debt and equity markets.
    More than $23 billion of that money moved into equities, the
most since June, and another $15 billion went to bonds, ICI
said. Commodities funds took in $1.4 billion, their best showing
since July 2016.
    "We've had a lot of cash on the sidelines for so many years,
but as we continue to march forward, especially on the equity
side of things, you see great optimism not only by institutional
investors but retail investors as well," said Wayne Wicker,
chief investment officer at ICMA Retirement Corp.
    "There seems to be some pressure on individuals that haven't
participated to reallocate."
    The broad buying comes as investors feed a desire for
greater returns using both bonds and stocks. Rising yields
during the week hurt bond prices but also attracted new
investors seeking a better entry point.
    Stock buyers have also been conditioned to "buy the dip,"
and they are starting to warm up to domestic equities in a
serious way after three straight years of profit-taking outflows
from such funds.
    Domestic equity funds attracted $12.9 billion in the latest
week, while world stock funds gathered $10.5 billion, ICI said.
    In more recent days, as equities sold off partly in response
to rising yields, investors kept buying stocks. 
    The SPDR S&P 500 ETF took in a combined $8.4 billion
of assets on Monday and Tuesday this week, according to a
spokesman for the fund's issuer, even as the Dow Jones
Industrial Average registered its biggest two-day drop
since September 2016.
    Negative returns in many bond funds so far this year have
failed to deter investors from piling into debt markets, which
have pulled in hundreds of billions of cash from investors since
the 2007-2009 global financial crisis.
    During the most recent week, taxable bonds pulled in $12.7
billion and municipal bonds pulled in $2.5 billion, according to
    Sales of commodity funds, meanwhile, have started to perk
up, after a long slumber, on speculation that inflation is on
the rise.
    The following table shows estimated ICI flows for mutual
funds and ETFs (all figures in million of dollars):
               1/24    1/17    1/10    1/3/2018  12/27/2017
 Equity        23,395  11,874  17,377  -20,997   4,089
    Domestic   12,911  1,720   3,637   -22,058   1,202
    World      10,484  10,155  13,739  1,061     2,886
 Hybrid        101     -237    -149    -327      -940
 Bond          15,122  9,250   18,916  7,566     4,116
    Taxable    12,659  6,794   15,760  7,057     4,494
    Municipal  2,462   2,457   3,156   509       -378
 Commodity     1,412   45      -2      -305      -296
 Total         40,029  20,932  36,142  -14,064   6,968
 (Reporting by Trevor Hunnicutt)
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