November 23, 2018 / 11:13 PM / 2 years ago

UPDATE 1-U.S. fund investors signal concern on credit

 (Adds details on funds, table, byline)
    By Trevor Hunnicutt
    NEW YORK, Nov 23 (Reuters) - U.S. fund investors renewed
their concerns about credit quality in corporate debt markets
during the latest week, hitting leveraged loan and high-yield
debt funds with multibillion-dollar withdrawals, Lipper data
showed on Friday.
    So-called "loan participation funds," made up of funds that
buy loans to highly indebted companies that typically must pay
investors more as interest rates rise, posted $1.7 billion in
withdrawals during the week ended Nov. 21. That was the most
cash pulled from those funds since December 2015, the research
service's data showed.
    High-yield "junk" bond funds based in the United States
recorded $2.2 billion in withdrawals, the most in four weeks.
Those funds include bonds from issuers with lower credit
    Sentiment around corporate credit has turned more negative
in recent weeks on concerns that economic and profit growth is
starting to peak as rising interest rates from the Federal
Reserve put more pressure on debtors.
    The market includes a high number of issuers in the energy
industry, which adds to the pressure on high-yield debt.
Benchmark international Brent crude oil prices are about
$59 a barrel, down more than 30 percent from highs above $86
just last month. 
    The $14 billion iShares iBoxx $ High Yield Corporate Bond
ETF, one widely traded junk bond fund, has nearly 15
percent of its holdings in the energy sector.
    In further signs of the risk-aversion, investors pulled $1.4
billion from technology sector stock funds in the week, the most
since February 2015. Tech funds have been the stars in the U.S.
equity market's near-10-year run but have been bludgeoned by the
change in sentiment and dour headlines, including Apple Inc's
 earlier this month putting out a lower-than-expected
sales forecast for the Christmas quarter that jolted parts
suppliers across the world.
    Short-term U.S. Treasury funds gathered $2.6 billion, the
most since January 2016. The funds have low credit risk because
the issuer is the government and less sensitivity to rates
because they repay over a shorter time frame, allowing investors
to reinvest the proceeds at higher rates.
    One area in funds does reflect an appetite for greater
risk-taking among investors. U.S.-based funds invested in
emerging market equities, such as those in China, pulled in $1.4
billion during the week, the most cash since March. Helping
those stocks is a slowdown in gains for the U.S. dollar, whose
rise this year put pressure on countries with
greenback-denominated debts.
    The following is a breakdown of the flows for the week,
including mutual funds and ETFs:
 Sector                     Flow Chg   % Assets  Assets     Count
                            ($blns)              ($blns)    
 All Equity Funds           -0.578     -0.01     6,884.714  12,145
 -Domestic Equities         -0.859     -0.02     4,906.126  8,627
 -Non-Domestic Equities     0.281      0.01      1,978.588  3,518
 All Taxable Bond Funds     4.470      0.16      2,755.225  5,995
 All Money Market Funds     18.306     0.66      2,811.588  1,023
 All Municipal Bond Funds   -0.332     -0.08     421.513    1,437
 (Reporting by Trevor Hunnicutt; Editing by Dan Grebler)
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