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Cash Is King for U.S. Fund Investors Wary of Stocks

August 25, 2017, 1:44 AM UTC
Trading On The Floor Of The NYSE As S&P Turns Positive Amid Trump Unease
Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., on Friday, Aug. 18, 2017. Stocks were mixed and the S&P 500 Index turned higher as investors digested the political upheaval in the U.S. and the latest terrorist attack in Europe. Photographer: Michael Nagle/Bloomberg via Getty Images
Michael Nagle/Bloomberg via Getty Images

Investors socked savings away and opted against loading up on U.S. stocks during the latest week, Lipper data for U.S.-based funds showed on Thursday.

Money market funds, designed to hold their cash value even when markets falter, attracted $24.6 billion during the week ended Aug 23. The products are on pace for their largest monthly inflows since December 2012, having drawn $69 billion already during August, Lipper said. Stock mutual fund and exchange-traded fund withdrawals were $3.4 billion, according to the weekly data.

Investors’ risk-averse shift came as the S&P 500 was hit by a 1.5 percent sell off last Thursday, the kind of setback that has grown increasingly rare as U.S. stocks prepare to claim a ninth straight year of positive total returns. Investors are wary of whether tax reform and other promised U.S. government policies will come to fruition and lift markets further, said Pat Keon, senior research analyst for Thomson Reuters’ Lipper unit.

A late-September deadline also loomed for U.S. officials to raise the amount of money the government can borrow, or risk default. “People are taking money out of play,” said Keon, “waiting to see what happens before they invest.”

Meanwhile, once-popular bets on rising rates and inflation are fading as monetary policymakers convene for a summit in Wyoming. Central bankers have kept developed economies’ interest rates near historic lows to stoke growth, and inflation has fallen short of levels that would push them to make a drastic change.

Rising inflation and rates hurt a bond’s value. Yet funds invested in certain types of bonds that gird against rising prices posted $300 million in outflows during the week, the most withdrawn since June 2016.

Loan participation funds, invested in debt that actually yields more when rates rise, recorded $377 million in weekly outflows, also their largest withdrawals in about 14 months.

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Fund flows show more confidence in high-rated bonds and international stocks than in domestic stocks. Non-domestic equity funds, which attracted $996 million in the latest week, have recorded outflows just four weeks this year, according to Lipper.

Investment-grade debt funds have not seen a single week of outflows in 2017, pulling in $3.3 billion during the latest seven-day period. By contrast, domestic stock funds posted $4.4 billion in weekly withdrawals.

Technology sector funds posted $427 million in outflows, their first withdrawals in seven weeks. High-yield bond funds recorded $1 billion in outflows, Lipper said.