Investors shun risk as 'fiscal cliff' talks continue

US-based stock funds suffered the most outflows since late July, as US lawmakers inched ahead in talks to avert the “fiscal cliff” of tax hikes and spending cuts set to occur in January, data from Thomson Reuters’ Lipper service showed yesterday.

Stock mutual funds and exchange-traded funds had net outflows of $7.26 billion in the week ended

November 21, the most since the week ended July 25, and more than doubling the prior week's outflows as investors fled risk.

Stock ETFs accounted for $4.37 billion of the outflows, the most since late October, while stock mutual fund investors redeemed $2.89 billion, the most since early August. Among ETFs, investors pulled $2.89 billion out of the SPDR S&P 500 ETF fund.

“Investors may just feel comfortable sitting on the sidelines at this point until they’re certain that a deal will be made,” said Lipper analyst Matthew Lemieux with regard to the avoidance of stock funds as US President Barack Obama and Congress negotiate to avert the ‘fiscal cliff.’

Bond funds enjoyed modest demand and pulled in $670.57 million, up from $287.3 million the previous week. Investors favored bond ETFs over mutual funds and gave $201.11 million to ETFs, reversing outflows of $789 million the previous week.

Bond mutual funds attracted just $469.46 million in inflows, less than half the $1.08 billion they took in during the prior week.