U.S. rate hike fears weigh on fund flows in latest week

September 1, 2016 5:24 PM EDT

Traders work on the floor of the New York Stock Exchange (NYSE) shortly after the opening bell in New York, U.S., August 30, 2016. REUTERS/Lucas Jackson

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By Trevor Hunnicutt

NEW YORK (Reuters) - The party looked to be waning for some popular investments in the latest week, with investors trimming exposure to U.S.-based funds invested in developing-market bonds, utilities stocks and gold, Lipper data showed on Thursday.

Investors' repositioning in the week through Aug. 31 came as remarks by some monetary policymakers seemed to suggest a U.S. interest rate hike might soon be in the cards.

"The Fed is creating the summertime blues," said Tom Roseen, head of research services for Thomson Reuters Lipper.

Investors withdrew $585 million from precious-metals commodities funds, such as the SPDR Gold Shares, the largest weekly outflows for those funds since December, Lipper data showed.

Emerging-market debt funds recorded $51 million in outflows, a small figure but the category's first withdrawals since mid-June after two straight weeks of market losses. Riskier high-yield junk bond funds posted $387 million in outflows over the weekly period, after three straight weeks of attracting new money.

Utilities sector funds posted $71 million in a fifth consecutive week of outflows. Investors, increasingly languishing in a world of money-losing bonds, have turned to high-yielding stocks like utilities and real estate to make up the difference.

Real-estate funds posted $90 million in outflows, their first net withdrawals in four weeks.

Rising rates could raise the opportunity cost of holding assets like gold, which yield nothing. Higher rates also generally translate to a stronger dollar, making it harder for emerging markets to repay debts using less valuable local currencies. Higher-yielding bonds could then draw investors away from real estate and utilities stocks.

In other rate-sensitive categories, financial sector funds took in $702 million, their fourth straight week of inflows. Banks are seen as having an opportunity to boost revenues as rates rise.

Funds that invest primarily in bonds protected against rising inflation took in $196 million, a second straight week of inflows as rising inflation may push the Fed to hike rates.

Treasury bond funds posted $202 million in outflows. Rising rates erode bond prices.

Emerging market stock funds managed to pull in $83 million in a ninth straight week of inflows, but lagged the average of $1.5 billion a week over the prior eight weeks.

Overall, investors pulled $748 million from U.S.-based stock funds in the week, adding to a nearly unbroken streak of withdrawals in recent months, the data showed.

Taxable bond funds in the United States posted $874 million outflows during the week, after three weeks of inflows, Lipper said.

(Reporting by Trevor Hunnicutt; Editing by Jennifer Ablan and Leslie Adler)

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