By Chris Dieterich
Investors swapped out of U.S. equity funds and into bonds at the
fastest clip on record last week, according to Lipper Inc., as they
grasped for safety while the stock market swooned.
Traditional U.S. stock mutual funds and exchange-traded funds
together saw withdrawals of $18.8 billion in the week ended Feb. 5,
their biggest weekly withdrawals on record. The abrupt reversal,
led by ETFs, comes after U.S. stock funds attracted $172 billion in
2013, the biggest inflow since the financial crisis.
Meanwhile, taxable bond mutual funds and ETFs soaked up $10.7
billion, their biggest intake on record, Lipper's data showed.
"There's been jitteriness in the markets," said David Mazza,
head of ETF research at State Street Global Advisors. "Broadly,
flows are moving away from U.S. equities," he said.
Investors also continued to yank cash out of emerging-market
stocks for the fourth week in a row. Emerging-market stock funds
shed $2.7 billion in the most-recent week, the biggest outflow
since February 2011, compared with $2.6 billion a week earlier.
Virtually all of the shift came from money sloshing out of U.S.
stock ETFs and into bond ETFs, funds that can often see big weekly
swings in assets. Just $386 million flowed out of traditional U.S.
stock mutual funds in the most recent week. Traditional bond mutual
funds attracted $1.2 billion.
Helping drive that shift was one fast-moving ETF money manager,
Good Harbor Financial LLC. It cashed in roughly $5 billion in U.S.
stock ETFs on Monday and bought roughly that same amount in ETFs
made up of Treasury bonds, the firm's chief executive, Paul
Ingersoll, confirmed with The Wall Street Journal on Monday.
Broadly, money began to flow back into bond funds in January
after seven straight weeks of outflows.
The S&P 500 slid 1.3% during the week ended
Wednesday--including a sharp drop on Monday, when the index
suffered its biggest one-day drop since June. After a roaring 2013
for stocks, markets have been hit in recent weeks by concerns about
global growth and political and economic troubles in emerging
markets including Argentina and Turkey.
After climbing 30% in 2013, the S&P 500 ended Wednesday down
5.2% in 2014.
"A lot of retail clients have been calling their brokers all
concerned," said Rick Fier, director of equity trading at Conifer
Securities. "Five weeks ago, they were bullish, bullish,
bullish."
Meanwhile, investors have been shedding stocks in favor of
bonds, pushing down the yield on benchmark 10-year Treasury notes
to 2.668% Wednesday from 3.030% at the end of last year. Bond
prices rise when yields fall.
Shifting appetite for bonds in favor of stocks runs counter to
the prevailing view of last year: investors fearing bond-fund
losses from rising interest rates would cash out of bond funds and
buy stocks. This "great rotation" would serve as support for the
market's rally, many market observers said.
"We're seeing a pause in the great-rotation story that was in
place for most of 2013," Mr. Mazza said. "There's been a major
spillover from emerging-market performance and fund flows that's
filtered into the developed-market space," he said.
Write to Chris Dieterich at chris.dieterich@wsj.com
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