By Sam Forgione
NEW YORK, Fund investors worldwide pulled a record $28.3 billion out of stock funds in the week ended Wednesday after mixed U.S. economic data fueled concerns of a major downturn in U.S. stocks, data from a Bank of America Merrill Lynch Global Research report showed on Friday.
The outflows from stock funds in the week ended Feb. 5 were the biggest, in dollar terms, since records began in 2002, according to Bank of America Merrill Lynch, which also cited data from fund-tracking firm EPFR Global. Bond funds, meanwhile, attracted a record $15 billion in new cash.
Funds that specialize in U.S. stocks were hit hardest, with outflows of $24 billion, with most of the withdrawals coming from exchange-traded funds, according to the report. The weekly outflows from U.S.-focused stock funds were also a record in dollar terms.
The outflows from stock funds and inflows into bond funds underscored investors' nervousness that U.S. stocks, which rallied to record highs in 2013 on the heels of the Federal Reserve's monthly bond-buying, could suffer a steep pullback.
"Now that the Fed is starting to turn off the spigot, people are unwinding some of their risk," said Robert Francello, head trader at Apex Capital in San Francisco.
Investors reacted strongly on Feb. 3 to a weaker-than-expected Institute for Supply Management report showing U.S. manufacturing activity slowed sharply in January, with the benchmark Standard & Poor's 500 stock index recording its worst single-day drop in seven months.
The S&P 500 fell 1.3 percent over the entire weekly period.
Fears of a protracted capital flight out of emerging market assets also lingered, leading investors to pull $6.5 billion out of emerging market stock funds. That extended withdrawals from the funds to 15 weeks, the longest outflow streak on record.
Investors' risk aversion drove them into bond funds, which attracted their largest weekly inflows, in dollar terms, on record.
Funds that mainly hold safe-haven U.S. Treasuries attracted $13.2 billion of the roughly $15 billion total, although the report said asset manager Good Harbor Financial pulled cash out of the SPDR S&P 500 ETF Trust and poured money into ETFs that hold Treasuries, likely accounting for $10 billion of the total inflows into Treasury funds.
The weaker-than-expected data on U.S. factory activity spurred safe-haven bids, pushing the yield on the benchmark 10-year U.S. Treasury note down to 2.57 percent on the day of the release, its lowest since the beginning of November. Bond yields move inversely to prices.
Investment-grade bond funds attracted $4.2 billion in new cash, marking the biggest inflows into the funds since May of last year, but investors shunned riskier high-yield bond funds. Those funds posted outflows of $1.2 billion, their biggest since last August.
"Worries seemed to peak for the moment earlier this week," said Jake Lowery, portfolio manager with ING U.S. Investment Management in Atlanta. "Flows into bond funds were driven primarily by the risk-off sentiment."
Commodities funds also posted their 13th straight week of outflows, bringing withdrawals this year to $2 billion. Gold prices rallied on safe-haven buying on the weak U.S. factory data, but retreated from their highs later in the week after U.S. services sector data showed a pickup in growth, leaving investors uncertain about the pace of the U.S. recovery.