Stock Doubts Drive Investors to Money Market Funds

Thursday, 26 Dec 2013 07:27 PM

 

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Investors in U.S.-based funds poured $21.4 billion into money market funds in the week ended Dec. 25, on fears of a potential pullback in U.S. stocks, data from Thomson Reuters' Lipper service showed on Thursday.

The inflows into money market funds, which are low-risk vehicles that invest in short-term securities, came after investors pulled $31.3 billion from the funds over the previous week.

"There's a decent group of investors who are taking capital gains and have mixed views of the sustainability of the rally," said Barry Fennell, Lipper senior research analyst, in Boston.

Money market funds are viewed as a safe place to park cash during bouts of volatility.

Fennell said that some investors have grown skeptical that the U.S. stock market could rise further from its recent highs, especially after the Federal Reserve's announcement last week that it will start trimming its monthly bond-buying stimulus in January.

The Standard & Poor's 500 stock index has climbed 29.2 percent this year, through Thursday's close. The S&P 500 rose 1.25 percent from the stock market's close on Dec. 18 through its close on Tuesday, during Lipper's reporting period, in response to positive U.S. data on economic growth, manufacturing and consumer spending.

The U.S. stock market was closed on Wednesday's Christmas holiday and trading ended early on Tuesday. In the short session on Christmas Eve, the Dow Jones industrial average rose to its fifth record closing high in a row and the S&P 500 advanced to its third consecutive close at an all-time high.

The Fed's $85 billion in monthly bond buying has lifted the S&P 500 for much of this year. The central bank surprised investors on Dec. 18, however, by announcing a cut of $10 billion a month to its bond purchases, starting in January.

The inflows into money market funds in the latest week, while sizable, were the largest in just three weeks. Investors poured $31 billion into the funds in the week ended Dec. 4, also on fears of a correction in the U.S. stock market.

Lipper had reported inflows of $13.73 billion into stock funds and $1.1 billion into taxable bond funds for the latest week, but later said that the figures were overstated.

"Significant capital gains distributions that were declared for many taxable, equity and municipal mutual funds during the week ending December 18, 2013, had not been reinvested by the close of the fund flow reporting period, which resulted in an overstatement of flows data for that week," Fennell said.

"The recognition of the reinvestment of these capital gain distributions during the subsequent week ending December 25, 2013, also resulted in an overstatement of that period's flow data," he added.

The inflows into money market funds were unaffected, however, Fennell said.

© 2014 Thomson/Reuters. All rights reserved.

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