U.S. stock fund flows decline week after one of biggest inflows of 2017

Illustration photo of a U.S. five dollar note

By Trevor Hunnicutt

NEW YORK (Reuters) – Investors pulled back from U.S.-based stock funds after pouring the most cash into those investments since February the previous week, Lipper data showed on Thursday.

Withdrawals of $2.2 billion struck U.S.-based equity mutual funds and exchange-traded funds during the week ended June 21, the research service said, during a rollercoaster week for stocks and as the Federal Reserve announced its second interest rate hike of 2017.

The S&P 500 recorded three down days and two up during the measurement period, gaining just a tenth of a percent overall, as oil prices dove, but healthcare and technology stocks gained favor.

In the previous week, U.S.-based stock funds managed to attract $10.9 billion.

Not coincidentally, investors turned to their all-time favorite safe haven of bonds, placing $3 billion in U.S.-based, taxable, fixed-income funds during the latest week, Lipper said.

The debt funds attracted cash for the 14th straight week even as the average fund in the category showed slightly negative performance for the first time in six weeks, the data showed.

“There’s some concern out there,” said Pat Keon, senior research analyst for Thomson Reuters’ Lipper unit. “We’re not getting the inflation that everyone is expecting.”

A narrowing gap between the prices of long- and short-term U.S. Treasuries showed the distance between the inflation expectations of monetary policymakers and financial markets.

The difference in yields between five-year notes and 30-year bonds flattened to 96 basis points during the week, the narrowest since December 2007. Investors normally demand a premium for longer-term debt, in part because quickening inflation erodes the bonds’ value.

Fed officials, by contrast, have called low inflation readings “transitory.”

“The Fed is focused on a forecast of the near-term decline in inflation prints being temporary,” said Jeffrey Rosenberg, BlackRock Inc’s chief fixed-income strategist.

“Market prices are not forecasting them being temporary.”

Investors also poured money into emerging markets as U.S.-based emerging market equity funds attracted $143 million over the weekly period, their sixth straight week of inflows.

U.S.-based emerging market debt funds attracted $217 million over the weekly, the group’s 20th straight week of inflows, Lipper added.

(Reporting by Trevor Hunnicutt; editing by Jennifer Ablan and G Crosse)