December 26, 2018 / 6:24 PM / 6 months ago

U.S. fund investors sold most bonds in seven weeks on Fed hike -ICI

    By Trevor Hunnicutt
    NEW YORK, Dec 26 (Reuters) - U.S. fund investors battered
bond markets with the biggest withdrawals in seven weeks and
snatched the most cash from foreign stocks since mid-2015 as the
Federal Reserve hiked interest rates, Investment Company
Institute (ICI) data showed on Wednesday.
    Some $12.2 billion tumbled from U.S.-based bond funds during
the week ended Dec. 19, the trade group said, as the Fed raised
its target interest rate for a ninth time in about three years.
    While the rate hike was telegraphed in advance and was
accompanied by projections of fewer rate hikes next year,
investors did not like the tone struck by Fed Chairman Jerome
Powell in a news conference where he said policymakers would
continue trimming their bond holdings by $50 billion each month,
an initiative he described accurately as on autopilot but more
debatably characterized as smooth.
    The Fed's shrinking balance sheet, combined with elevated
U.S. government deficit spending, have pumped more bonds into
markets that may be growing less willing to sop up the excess.
    At the same time, investors are growing more cautious over
spillover risks in the equity market, too. ICI said "world"
stock funds primarily invested abroad recorded $7.2 billion in
withdrawals, marking a fourth straight week of withdrawals and
the most cash pulled since August 2015.
    In addition to the rate hikes, investors have been worried
about excessive corporate borrowing, U.S.-China trade tensions
and the potential for slowing economic growth.
    Overall, stock funds recorded $9.6 billion in withdrawals
for a second straight week in the red. More than $56 billion
left mutual funds during the week, while ETFs attracted $25
billion, accelerating a rotation to the typically lower-fee
product. The data does not include money market funds where
investors park cash.
    "Even as markets continue through a period of volatility,
fund shareholders remain committed to saving for the long term,"
said ICI Chief Economist Sean Collins in a statement. Collins
added that the withdrawals represent a fraction of a percent of
overall mutual fund assets. "This is consistent with the steady
investment behavior we have witnessed from fund shareholders for
decades and reinforces some investors view periods of volatility
as a buying opportunity," he said.
    The following table shows estimated ICI flows for mutual
funds and ETFs (all figures in millions of dollars):
                 12/19    12/12    12/4    11/28    11/20
 Equity         -9,587  -17,469   4,585   -6,348     -285
    Domestic    -2,398  -11,949   5,392   -4,614     -855
    World       -7,189   -5,519    -807   -1,734      570
 Hybrid         -9,536   -5,497  -3,448   -3,391   -2,476
 Bond          -12,200  -12,021  -5,243   -3,535   -3,798
    Taxable    -11,688  -12,199  -4,608   -2,639   -3,220
    Municipal     -512      178    -635     -896     -578
 Commodity         390      155    -321        4      -65
 Total         -30,933  -34,832  -4,426  -13,270   -6,624
 (Reporting by Trevor Hunnicutt; editing by Jonathan Oatis)
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