Investors sitting on U.S. stock returns need a place to put the money, and the big winners are international markets and high-rated debt issuers from corporations to governments.
U.S. fund investors pulled $8.4 billion from stocks and funnelled $3.3 billion into taxable bonds during the most recent week, responding defensively to a strong year of market gains, Lipper data showed on Thursday.
It is a continuation of a theme that dominated in 2017: Investors raided strong-performing domestic stock funds and put the money elsewhere. But the trend is a break from the axiomatic truth that flows chase performance.
Domestic equity funds posted outflows of $27.3 billion in 2017, according to preliminary year-end data from Lipper, marking a third year of outflows for the category.
"It was a phenomenal year as far as returns go," said Tom Roseen, head of research services for Thomson Reuters` Lipper unit. He said the average equity fund was up more than 20 percent for the year, adding, "But what we saw was a mass exodus from retail."
Non-domestic equity fund inflows of $171.4 billion and Treasury fund inflows of $34 billion for the year are the largest on records dating to 1992. Emerging market inflows were the biggest since 2010, Lipper`s preliminary data showed.
That cash from U.S. investors is helping keep bond yields and borrowing costs low worldwide.
Yet the domestic equity outflows are not universal.
Exchange-traded funds (ETFs), many of which track an index and charge lower fees than funds run by stockpickers trying to beat the market, had another record year of inflows.
Technology-focused equity funds pulled in about $13 billion for the year, the most since the sector`s boom year in 2000, when they pulled in $41 billion, before the sector tanked.
High-yield bonds, made up of the riskiest corporate debt, have been an exception to the festive atmosphere in bonds, posting $21 billion outflows for the year, the largest since 2014.
The following is a breakdown of the flows for the latest week, through Jan. 3, including mutual funds and ETFs:
Sector Flow Chg % Assets Assets Count
All Equity Funds -8.397 -0.12 6,857.277 12,131
-Domestic Equities -10.797 -0.23 4,692.258 8,653
-Non-Domestic Equities 2.400 0.11 2,165.019 3,478
All Taxable Bond Funds 3.279 0.13 2,632.191 6,041
All Money Market Funds -7.094 -0.26 2,686.100 1,034
All Municipal Bond Funds -0.048 -0.01 402.705 1,474
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