US-based mutual funds post 2nd biggest outflows of year

New York, June-18 Investors in US-based mutual funds pulled $2.9 billion out of bond funds in the week ended June 10, after a strong US jobs report suggested the Federal Reserve would hike interest rates sooner than expected, data from the Investment Company Institute showed on Wednesday.

The outflows were the second-biggest of 2015 after bigger withdrawals during the first week of the year, according to the data from the ICI, a US mutual fund trade organization. They were the first outflows in eight weeks.

Taxable bond funds posted $2.3 billion in outflows, while funds that hold tax-free municipal bonds posted $653 million in outflows, their highest in eight weeks.

Investors continued to pull cash out of funds that specialize in US stocks, with those funds posting $3.9 billion in outflows to mark their 15th straight week of withdrawals.

Funds that specialize in international shares attracted $3.6 billion in new cash to mark their biggest inflows in three weeks, and their 23rd straight week of inflows.

Overall, US- and international-focused stock funds combined posted $265 million in outflows to mark their fifth straight week of withdrawals.

Labor Department data released on June 5 showed US employers added the most jobs since December in May, while payrolls for March and April were revised higher. The surge in jobs growth led traders to move their bets on when the Fed will start to raise rates to as soon as October.

"As the talk and the background noise gets louder and louder about rate hikes this year, I think it's natural that the nervousness is reflected in higher redemptions from bond funds across the board," said Margaret Patel, senior portfolio manager at Wells Capital Management in Boston.

Fed rate hikes are expected to hurt bond prices.

Investors have favored funds that hold international stocks for most of this year on the view that international shares are cheaper than their US counterparts and have more upside potential given loose monetary policies in Europe and Japan.

Hybrid funds, which can invest in stocks and fixed income securities, attracted $185 million to mark their fourth straight week of new demand.

Source: TOI