U.S. fund investors shun stocks during second-quarter earnings, buy bonds: Lipper

Traders work on the floor of the NYSE in New York
Traders on the floor of the New York Stock Exchange. REUTERS/Brendan McDermid

August 2, 2017

By Trevor Hunnicutt

NEW YORK (Reuters) – U.S. fund investors sidestepped stocks in favor of bonds during the latest week, Lipper data showed on Thursday, showing little confidence as a heavy dose of second-quarter corporate earnings results rolled in.

Taxable bond funds based in the United States attracted $2.5 billion in their third straight week of inflows. Relatively low-risk money market funds pulled in nearly $19 billion, the data showed.

The $1.4 billion in withdrawals for stock funds marked five weeks of outflows in the past six.

Retail investors and hedge funds are “bailing out of equities” in favor of debt, a signal that now is the time to buy stocks, two strategists for Voya Financial Inc’s investment management unit said on Thursday.

“This is occurring even as corporate earnings are surging, up 14 percent in the first quarter and likely to grow at a double-digit pace in the second quarter as well,” the strategists, Douglas Coté and Karyn Cavanaugh, said in a note.

“We can only think that politics is unsettling investors. This is not the time to be doubling down on President (Donald) Trump’s perplexing tweets or the incessant media drama by making irrational investment decisions.”

International stock fund inflows of $1.5 billion helped soften the blow of domestic equity fund withdrawals totaling $3 billion.

Investment-grade bond funds, a major subset of the taxable debt category, attracted $2.3 billion in the latest week and have not recorded a single week of withdrawals this year.

That is despite a selloff that sent bond yields spiking on Tuesday, a day before the Federal Reserve said it would keep rates steady.

Commodities funds focused on precious metals posted $928 million of withdrawals during the week, their largest outflows of the year, the data showed. Rising bond rates draw investors away from assets like metals that yield nothing.

(Reporting by Trevor Hunnicutt, additional reporting by Rodrigo Campos; editing by Jennifer Ablan and G Crosse)