UPDATE 2-U.S.-based junk bond funds see $3.28 bln net outflow -Lipper

06/14/2013

By Alison Griswold June 13 (Reuters) - Investors in funds based in the United States pulled a net $3.28 billion from corporate high-yield bond funds in the week ended June 12 as concerns lingered that the Federal Reserve would taper its stimulus program, data from Thomson Reuters Lipper service showed on Thursday. The latest week's large junk bond outflows followed a record $4.63 billion in outflows from high-yield bonds in the preceding week. All taxable bond funds, meanwhile, had net outflows of $5.51 billion in the latest week, after seeing their largest outflows since October 2008 in the previous week. "I think the natural move is investors are starting to pare back some of their bond exposure and we're really seeing that on the riskier end, so in high-yield bonds and emerging market debt," said Matthew Lemieux, a senior research analyst for Lipper. The 10-year Treasury note yield climbed roughly 50 basis points during May as speculation mounted over how the Fed may act to wind down its bond-purchase program, which has artificially held yields down. Junk bonds have been feeling the ripple effects of the recent rise in Treasury yields, with the Bank of America/Merrill Lynch High Yield Master Index losing 2.91 percent from its peak in early May. Because high-yield bonds sold off even more than Treasuries, the yield premium that junk bond investors demanded over government debt, or spread, actually widened. Junk bond spreads have blown out by 79 basis points since early May to currently trade above 500 basis points over Treasuries. Emerging markets equity funds were also a big underperformer in the latest week. They had outflows of $2.13 billion, the largest since February 2011. Emerging market debt funds had redemptions of $622 million, their third consecutive week of outflows. The outflows from all emerging markets equity funds were driven by $2.32 billion in redemptions from the iShares MSCI Emerging Markets Index fund, also the most since February 2011. The MSCI Emerging Markets Index fund has about one-tenth the assets of all emering markets equity funds, and has lost nearly 10 percent in just one month. The flight from emerging markets accelerated Tuesday after the Bank of Japan left its monetary policies unchanged, dashing hopes for additional stimulus measures and triggering a global selloff in the equity market. Japanese equities had outflows for the second consecutive week, with investors pulling $53 million from the funds. Until the week ended June 5, Japanese equities had seen inflows for 28 consecutive weeks. All equity funds had net outflows of $608 million. Domestic equities had inflows of $1.28 billion, while non-domestic equities had outflows of $1.89 billion. The BOJ decision added to existing worries that the Fed would begin to trim its $85 billion of monthly stimulus in the near future. Fed officials hinted on May 22 that the central bank may reduce its quantitative easing in the coming months. The benchmark S&P 500 rose 0.23 percent over Lipper's reporting period. ETFs and mutual funds that invest in Treasury Inflation Protected Securities have been experiencing outflows as investors pulled back on bets that loose monetary policies from central banks would trigger runaway inflation. For example, iShares Barclays TIPS Fund has seen some of the heaviest outflows this year among U.S.-listed ETFs with net redemptions of $329 million in the latest week. The WisdomTree Japan Hedged Equity Fund had outflows for the second consecutive week after seeing inflows since November 2012. ETFs are generally believed to represent the investment behavior of institutional investors, while mutual funds are thought to represent the retail investor. The weekly Lipper fund flow data is compiled from reports issued by U.S.-domiciled mutual funds and exchange-traded funds. The following is a broad breakdown of the flows for the week, including exchange-traded funds (in $ billions): Sector Flow Chg % Assets Assets Count ($Bil) ($Bil) All Equity Funds -0.608 -0.02 3,301.776 10,326 Domestic Equities 1.281 0.05 2,476.662 7,633 Non-Domestic Equities -1.890 -0.23 825.114 2,693 All Taxable Bond Funds -5.509 -0.34 1,595.386 4,967 All Money Market Funds -5.222 -0.22 2,339.810 1,356 All Municipal Bond Funds -1.605 -0.50 318.932 1,400

Story Copyright © 1999-2014 Reuters HedgeWorld All rights reserved.