U.S.-based stock funds have $7.3 billion outflow - Lipper

NEW YORK Fri Apr 26, 2013 5:47am IST

Traders work on the floor at the New York Stock Exchange, April 25, 2013. REUTERS/Brendan McDermid

Traders work on the floor at the New York Stock Exchange, April 25, 2013.

Credit: Reuters/Brendan McDermid

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NEW YORK (Reuters) - Investors pulled $7.3 billion out of U.S.-based stock funds in the latest week, the most since July of last year even as U.S. stock markets recovered from a sharp selloff, data from Thomson Reuters' Lipper Service showed on Thursday.

The big outflow was a result of investors pulling $8.4 billion out of stock exchange-traded funds in the week ended April 24, also the most since July of last year.

The outflows from stock funds follow seven straight weeks of cash gains into the funds. Those cash gains were largely driven by rallies in the U.S. stock market. The benchmark S&P 500 .SPX has risen over 11 percent this year as global stimulus measures from the U.S. Federal Reserve and European Central Bank have boosted markets.

Investors soured on ETFs that hold U.S. stocks and yanked $7.8 billion from the funds, also the most since July of 2012, after committing $95.7 million to the funds the previous week.

"People realize how fragile the market is right now," said Tom Roseen, head of research services at Lipper. "All we need is a black swan event, and the house of cards is getting ready to fall."

All stock mutual funds reaped inflows of $1.07 billion over the week, which offset the outflows in stock ETFs for a final tally of negative $7.3 billion from all stock funds, Lipper said.

Mutual funds that hold only U.S. stocks, however, suffered outflows of $171.6 million, which were the first weekly outflows from the funds since mid-February.

ETFs are generally believed to represent the investment behavior of institutional investors, while mutual funds are thought to represent the retail investor.

The significant outflows from ETFs come in the wake of Wall Street's roller coaster ride on Tuesday, when a false tweet from a trusted news organization sent the U.S. stock market into freefall.

The 143-point fall in the Dow Jones industrial average .DJI came after hackers sent a message from the Twitter feed of the Associated Press, saying the White House had been hit by two explosions and that Barack Obama was injured.

The fake tweet, which was immediately corrected by Associated Press employees, caused a sensation on Twitter and in the stock market.

Markets recovered from the sharp decline, however, amid solid earnings from companies such as Google (GOOG.O), Boeing (BA.N), and Netflix (NFLX.O). A rise in the shares of Microsoft Corp (MSFT.O) also lifted the S&P 500 .SPX and Nasdaq Composite .IXIC indexes after CNBC reported that activist investor ValueAct Capital had taken a $2 billion stake in the company.

The market recovery followed a sharp selloff in U.S. stock markets the previous week amid disappointing U.S. economic data and weaker-than-expected growth in China's economy.

Among ETFs, investors pulled the most cash out of the SPDR S&P 500 ETF .SPY, $2.8 billion, even as the index rose 1.73 percent over the reporting period. The Dow, meanwhile, rose 0.4 percent over the weekly period.

ETFs that hold emerging market stocks were also hit by outflows of $976.6 million over the week, the most in four weeks. The iShares: MSCI Emerging Markets (EEM.P) fund sustained outflows of $926.5 million, despite the MSCI's all-country world equity index's rise of 2.1 percent over the period.

The SPDR Gold Trust (GLD.P) sustained the second largest outflows among ETFs of $1.92 billion. The outflows accounted for a large chunk of total outflows of $2.26 billion from commodities and precious metals funds.

The outflows from the funds, which are largely exposed to physical gold, were the second highest on record after the prior week's record outflow amid a dramatic selloff in gold prices.

Taxable bond funds, meanwhile, attracted inflows of $4.76 billion, the most in five weeks and up from $4.27 billion the previous week. Investment-grade corporate bond funds raked in $2.24 billion in new cash, the most in five weeks.

Investors also put $520.8 million into riskier high-yield "junk" bond funds, the most since early March and more than doubling inflows of $241.8 million the previous week.

Roseen of Lipper said that, despite anticipation of a short-term pullback in the market, investors are comfortable with stocks over the long haul, leading to demand for high-yield debt. High-yield bonds are perceived by some as a substitute for stocks.

The weekly Lipper fund flow data is compiled from reports issued by U.S.-domiciled mutual funds and exchange-traded funds.

(Editing by Bob Burgdorfer)

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