Reuters: US Dollar Report: High-yield bond funds suffer massive outflow hit-Lipper

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High-yield bond funds suffer massive outflow hit-Lipper May 24th 2012, 22:54 Thu May 24, 2012 6:54pm EDT By Daniel Bases NEW YORK, May 24 (Reuters) - High-yield bond funds suffered a massive round of net redemptions in the week ended May 23, tipping the taxable bond fund sector to net sales for the first time since mid-December, data from Thomson Reuters Lipper showed on Thursday. Taxable bond funds, including passively managed exchange traded funds (ETFs), saw net outflows of $1.65 billion, breaking an inflow streak that had stretched to 22 weeks. Equity funds posted a net outflow of $4.6 billion in the latest week during which the Standard & Poor's 500 - the U.S. benchmark stock index - booked a loss of 0.45 percent. Excluding ETFs, which are anecdotally considered to represent institutional investor behavior, equity funds had net outflows of $2.44 billion, indicating retail investors were also big sellers. Investors have been buffeted by European debt woes and talk of a possible exit from the euro zone and its currency by Greece. The $2.45 billion move out of high-yield bond funds, the fourth-largest weekly net redemption on record and the biggest move since August 20111, seems to represent a snowball effect from transaction in a single ETF. "When a large institutional investor took $800 million or so out of a popular junk bond ETF, that may have spooked the retail crowd or tipped off other institutional investors," said Jeff Tjornehoj, head of Americas Research at Lipper. "This in-kind redemption occurred in the data prior to this latest week. However, we are feeling the knock on effect now," he said, referring to the SPDR Barclays Capital High Yield Bond exchange-traded fund. The fund reported net outflows of $452 million in the latest week, its second largest net redemption on record following the prior week's whopping $871 million net outflow. An in-kind redemption essentially reduces the size of the fund without selling the underlying securities. Instead the investor takes the securities that backed the ETF shares themselves rather than sell out the position simply for cash. While the cash was squeezed out of taxable bonds and equities, it did not move into money market funds, which saw a paltry net inflow of just $54 million for the week. Municipal bond funds had a healthy inflow of $534 million. Corporate investment grade and corporate high quality fixed income funds had net outflows. However, the government-backed mortgage bond funds and pure U.S. Treasury funds had inflows of $524 million and $771 million, respectively, reflecting the lingering anxiety among investors given a weak global economic backdrop. EQUITY WEAKNESS The outflow from equity funds extended to three straight weeks. After a solid first quarter, with a cumulative $33.5 billion in net inflows, the second quarter is shaping up as quite the opposite with $16.3 billion in net redemptions. "Equities are expressing the skeptical nature of investors at this time. The Facebook flop didn't help matters with regard to investor confidence," said Lipper's Tjornehoj, referring to the botched initial public offering of the world's biggest social network and heralded listing, Facebook Inc, on the Nasdaq Stock Market. Among the broad equity sectors tracked by Lipper, outflows came seen in the aggressive, large-cap and small-cap categories. Energy sector funds had $1.22 billion in net outflows. Financial and banking had net inflows of $448 million, and gold and natural resource funds pulled in a net $351 million. Equity income funds remain a favorite category for investors seeking yield, pulling in $281 million, where their safe government-focused bond funds are struggling with historically low interest rates. The weekly Lipper fund flow data is compiled from reports issued by U.S.-domiciled mutual funds and exchange-traded funds. The following is a broad breakdown of the flows for the week, including exchange-traded funds (in $ billions): Sector Flow Chg % Assets Count ($ blns) Assets ($ blns) All Equity Funds -4.612 -0.17 2,646.028 10,348 Domestic Equities -3.681 -0.18 2,027.270 7,748 Non-Domestic Equities -0.932 -0.15 618.759 2,600 All Taxable Bond Funds -1.650 -0.12 1,404.144 4,646 All Money Market Funds 0.054 0.00 2,290.212 1,429 All Municipal Bond Funds 0.534 0.18 297.662 1,355 Link this Share this Digg this Email Reprints

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