Investors pull most from U.S. stock funds invested abroad since May: ICI

August 31, 2016 1:08 PM EDT

A man is reflected on a stock quotation board outside a brokerage in Tokyo, Japan July 11, 2016. REUTERS/Issei Kato/File Photo

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By Trevor Hunnicutt

NEW YORK (Reuters) - Investors took back the most money since May from U.S.-based funds that buy international stocks, further hemming in their exposure to Europe and Japan, Investment Company Institute data for the latest week showed on Wednesday.

The international stock funds recorded $2.2 billion in withdrawals during the week, the data showed, the largest outflows since roughly the same amount fled the funds at the end of May.

"A stronger U.S. dollar, combined with concerns about economic weakness in Europe and Japan has caused investor outflows," said Todd Rosenbluth, director of exchange-traded and mutual fund research at S&P Global Market Intelligence.

While emerging markets have been a popular draw for fund investors this year, Japanese and developed European markets have not been able to shake economic weakness, while weaker currencies generally hurt returns for U.S. dollar investors.

Although the MSCI ACWI index measuring major markets has returned more than 6 percent this year, a debate over whether the Federal Reserve is inclined to raise interest rates has pressured trading in recent days.

Over the same week, funds focused on domestic shares posted $4.5 billion in outflows, the trade group said, marking their worst flows result in three weeks.

Overall, stock mutual funds and exchange-traded funds recorded $6.6 billion in outflows for the week.

U.S. investors have been shifting money from stocks to bonds for most of this year.

They pulled $65 billion from U.S.-based stock mutual funds and ETFs in the first half of 2016, and poured $104 billion into bond funds, earlier ICI data showed.

That puts the funds on course for bigger annual withdrawals than even 2008, the peak of the global financial crisis, when U.S.-based stock funds sank by $72 billion for the full year.

Bond funds attracted $6.4 billion in their eighth consecutive week netting cash, ICI data showed.

Municipal and corporate debt funds have become a hot commodity for investors seeking income and safety in a world of increasingly negative bond returns and concerns about the stock market.

WisdomTree Investments Inc senior fixed income strategist Kevin Flanagan said that although some U.S. bond yields remain attractive, investors should not necessarily expect price gains in the bonds to continue apace.

"It will be difficult to replicate that kind of return," he said. "The focus is more on the income part of the equation."

The following table shows estimated ICI flows, including ETFs (all figures in millions of dollars):

8/24 8/17 8/10 8/3 7/27/2016

Equity -6,649 -456 3,723 -6,991 -6,178

-Domestic -4,496 -2,298 3,723 -6,000 -4,130

-World -2,153 1,842 -1 -990 -2,047

Hybrid -71 235 -58 -106 491

Bond 6,404 8,909 9,796 6,438 6,134

-Taxable 4,911 7,107 8,186 4,906 4,441

-Municipal 1,493 1,802 1,610 1,532 1,694

Commodity -252 -411 78 913 -362

Total -568 8,277 13,540 254 85

(Reporting by Trevor Hunnicutt; Editing by Meredith Mazzilli)

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