Investors shun risk as 'fiscal cliff' talks continue -Lipper

Fri Nov 23, 2012 6:40pm EST

By Sam Forgione
    NEW YORK, Nov 23 (Reuters) - U.S.-based stock funds suffered
the most outflows since late July as U.S. lawmakers inched ahead
in talks to avert the "fiscal cliff" of tax hikes and spending
cuts set to occur in January, data from Thomson Reuters' Lipper
service showed on Friday. 
    Stock mutual funds and exchange-traded funds had net
outflows of $7.26 billion in the week ended Nov. 21, the most
since the week ended July 25, and more than doubling the prior
week's outflows as investors fled risk.
    Stock ETFs accounted for $4.37 billion of the outflows, the
most since late October, while stock mutual fund investors
redeemed $2.89 billion, the most since early August. Among ETFs,
investors pulled $2.89 billion out of the SPDR S&P 500 ETF fund
. 
    "Investors may just feel comfortable sitting on the
sidelines at this point until they're certain that a deal will
be made," said Lipper analyst Matthew Lemieux with regard to the
avoidance of stock funds as U.S. President Barack Obama and
Congress negotiate to avert the 'fiscal cliff.'
    Bond funds enjoyed modest demand and pulled in $670.57
million, up from $287.3 million the previous week. Investors
favored bond ETFs over mutual funds and gave $201.11 million to
ETFs, reversing outflows of $789 million the previous week. 
    Bond mutual funds attracted just $469.46 million in inflows,
less than half the $1.08 billion they took in during the prior
week. 
    ETFs are generally believed to represent the investment
behavior of institutional investors, while mutual funds are
thought to represent the retail investor.
    The benchmark S&P 500 stock index rose 2.62 percent
over the reporting period despite data showing that the euro
zone entered a recession in the third quarter and uncertainty
over how U.S. lawmakers would address the looming budget crisis.
    After Lipper tabulated results, markets rose sharply this
week with the Dow Jones Industrials Average ending over 13,000,
especially in light holiday trading. 
    Investors also shunned risk by taking $1.13 billion out of
high-yield corporate bond funds, a slight improvement from
outflows of $1.31 billion the previous week, which was the most
funds withdrawn since early June. 
    Higher-quality, investment-grade, corporate bond funds
pulled in $1.11 billion, down slightly from inflows of $1.16
billion the previous week. 
    Despite taking a risk-off approach, investors are still
looking to "scrape for a little bit of yield" in the
investment-grade debt funds, said Lemieux.
    Safe-haven U.S. Treasury funds, meanwhile, attracted $407.7
million in new cash, up slightly from inflows of $373.73 million
the previous week. The yield on the benchmark 10-year Treasury
fell to 1.581 percent last Friday.
    Money-market funds, which yield very little, but are often
used for parking cash, had large inflows of $20.52 billion after
outflows of $5.5 billion the previous week. 
    Investors also gave $1.82 billion to municipal bond funds,
the second highest on a record spanning nearly 21 years and just
slightly below the record of $1.85 billion in September 2009. 
    Investors continue to see municipal bond funds as a way to
avoid potential increases in investment income tax rates,
Lemieux said.
    The weekly Lipper fund flow data is compiled from reports
issued by U.S.-domiciled mutual funds and exchange-traded funds.
    The following is a broad breakdown of the flows for the
week, including exchange-traded funds (in $ billions): 
    
 Sector                  Flow Chg  %       Assets ($Bil)  Count
                         ($Bil)    Assets                 
 All Equity Funds        -7.257    -0.26   2,798.154      9,995
 Domestic Equities       -8.197    -0.40   2,100.854      7,414
 Non-Domestic Equities   0.940     0.14    697.300        2,581
 All Taxable Bond Funds  0.671     0.05    1,488.820      4,653
 All Money Market Funds  20.518    0.89    2,316.107      1,391
 All Municipal Bond      1.822     0.57    322.685        1,339
 Funds