Get 40% Off
💎 WSM is up +52.1% since our AI picked it in December! Unlock all premium stock picksUnlock now

U.S.-based stock funds beat bonds for 4th week as higher rates loom: ICI

Published 12/14/2016, 12:22 PM
Updated 12/14/2016, 12:30 PM
© Reuters.  U.S.-based stock funds beat bonds for 4th week as higher rates loom: ICI

© Reuters. U.S.-based stock funds beat bonds for 4th week as higher rates loom: ICI

By Trevor Hunnicutt

NEW YORK (Reuters) - Investors poured $5.4 billion into U.S.-based stock funds during the latest week, showing more optimism about equities than bonds for the fourth straight week ahead of a possible rate hike and the guarantee of a new guard in Washington.

Domestic stock funds took in nearly $3 billion during the week through Dec. 7, while global stock funds added $2.4 billion in their best weekly sales result since March, according to the Investment Company Institute trade group.

"Investor sentiment for U.S. equities to climb higher remains strong as the stock market remains at or near record levels and with strong 2017 earnings expectations," said Todd Rosenbluth, director of ETF and mutual fund research at CFRA. "With a projected Fed hike today and more to come in 2017, investors have rotated to equities."

Projections of government spending under a new Donald Trump presidential administration have lifted stocks but sparked fears of bond-harming inflation, and of a "great rotation" from bonds to stocks. The president-elect takes office next month.

The U.S. Federal Reserve is also widely expected to hike rates after a policy meeting Wednesday, a move that could also hurt bond prices.

Bond funds, which have seen losses in recent weeks, posted about $250 million in outflows during the week.

Investors have now pulled money from municipal bonds for six straight weeks, which another $4.4 billion in the latest week, and from commodity funds for four straight weeks. Those funds, which include those that buy gold, posted $1.7 billion in withdrawals.

Gold is highly sensitive to higher rates, which raise the opportunity cost of holding non-yielding assets, while boosting the dollar, in which the metal is priced.

ROTATION STALLING?

Yet there were signs that the "great rotation" trend is fading.

The positive result for stocks, for instance, was exclusively due to a massive $12.7 billion move into stock ETFs, which helped counteract investors' continuing to pull cash from mutual funds. Equity mutual funds posted $7.4 billion in withdrawals.

Mutual funds with active managers have notched lackluster performance against relatively low-cost index funds and ETFs that track the market.

Meanwhile, bond funds showed signs of resilience.

Taxable-bond funds took in $4.1 billion in the seven days through Dec. 7, the most money since October, as investors bought floating-rate and high-yield corporate bonds that tend to hold up better when rates rise.

The following table shows estimated ICI flows, including ETFs (all figures in millions of dollars):

12/7 11/30 11/22 11/16 11/9/2016

Equity 5,367 2,715 9,174 21,468 -7,551

-Domestic 2,954 2,779 6,927 23,161 -6,321

-World 2,413 -64 2,246 -1,693 -1,230

Hybrid -1,423 -984 -792 -1,757 -3,301

Bond -250 -4,087 -1,723 -9,703 2,757

-Taxable 4,131 -623 792 -5,019 2,867

-Municipal -4,381 -3,463 -2,515 -4,684 -110

Commodity -1,724 -854 -1,647 -1,860 637

Total 1,970 -3,210 5,012 8,148 -7,458

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.