U.S. equity funds see large outflows as investors book profit

(Reuters) - Investors withdrew massive capital out of U.S. equity funds in the week to Sept. 17 as they turned cautious about the market's lofty valuations following the recent rally through a policy rate cut by the Federal Reserve and rushed to lock in profits.

According to LSEG Lipper data, investors pulled out a net $43.19 billion from U.S. equity funds in the week, logging their largest weekly net sales since a $50.62 billion weekly outflow in mid-December 2024.

The S&P 500 hit a record high of 6,656.8 on Thursday, close to a 37.7% gain from nearly a 1-1/2 year low of 4,835.04 hit of April 7.

"The S&P 500 forward price-to-earnings ratio, at 22.6x, is in the 99th percentile over the past 20 years," said Mark Haefele, Chief Investment Officer at UBS Global Wealth Management.

"After such a strong recent run, a period of consolidation should not come as a surprise, in our view," UBS's Haefele said.

U.S. large-cap funds had a net $34.19 billion weekly outflow, the biggest since at least 2020. Investors also shed mid-cap funds of $1.58 billion but invested a marginal $50 million in small-cap funds.

Sectoral funds saw a net $1.24 billion outflow, the first weekly net sales in four weeks as investors dumped technology sector funds of a robust $2.84 billion.

U.S. bond funds, meanwhile, saw a 22nd successive weekly inflow to the tune of $7.33 billion.

The short-to-intermediate investment-grade funds, general domestic taxable fixed income funds and municipal debt funds stood out with $1.59 billion, $1.14 billion and $1.04 billion, respectively in weekly inflows.

Investors, meanwhile, ditched $23.65 billion worth of money market funds, bringing a three-week trend of net purchases to an end.

(Reporting by Gaurav Dogra; Editing by Nick Zieminski)

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