U.S.-based domestic stock funds post biggest outflow since 2011: ICI

By Sam Forgione

NEW YORK (Reuters) - Investors in U.S.-based mutual funds pulled $11.5 billion out of funds that specialize in U.S. shares in the week ended July 15, partly on concerns that higher interest rates could hurt U.S. stocks, data from the Investment Company Institute showed on Wednesday.

The outflows were the biggest in any week since August 2011, according to the data from ICI, a U.S. mutual fund trade organization. The outflows marked the 20th straight week of withdrawals from the funds.

Funds that specialize in international shares, which have attracted inflows over every week this year, attracted $3.8 billion. The $7.7 billion in total outflows from all stock funds reversed the prior week's inflows of $2.2 billion and marked the biggest withdrawals in over a year.

Bond funds posted $486 million in outflows to mark their third straight week of withdrawals. The outflows were, however, the smallest over those three weeks and were less than one-sixth the prior week's $3.2 billion in outflows.

The outflows from stock funds likely, in part, reflect investors' nervousness that the Federal Reserve's expected tightening of monetary policy could hurt U.S. stocks, said Bryan Novak, senior managing director at Astor Investment Management in Chicago.

"You have an investor that’s underestimating the (U.S.) economy and overestimating what the impact of the Fed rate hikes is going to be," Novak said. He said that, while Fed rate hikes will inject volatility into the U.S. stock market, they will not "have a long-lasting detrimental impact on stocks."

The Fed is expected to hike rates later this year, potentially as early as September.

Hybrid funds, which can invest in stocks and fixed income securities, posted $210 million in outflows after attracting small inflows of $66 million over the prior week.

(Reporting by Sam Forgione; Editing by Nick Zieminski)

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