Rising tide in U.S. markets helps bonds, global stocks

By Trevor Hunnicutt

NEW YORK (Reuters) - Investors sitting on U.S. stock returns need a place to put the money, and the big winners are international markets and high-rated debt issuers from corporations to governments.

U.S. fund investors pulled $8.4 billion from stocks and funnelled $3.3 billion into taxable bonds during the most recent week, responding defensively to a strong year of market gains, Lipper data showed on Thursday.

It is a continuation of a theme that dominated in 2017: Investors raided strong-performing domestic stock funds and put the money elsewhere. But the trend is a break from the axiomatic truth that flows chase performance.

Domestic equity funds posted outflows of $27.3 billion in 2017, according to preliminary year-end data from Lipper, marking a third year of outflows for the category.

"It was a phenomenal year as far as returns go," said Tom Roseen, head of research services for Thomson Reuters' Lipper unit. He said the average equity fund was up more than 20 percent for the year, adding, "But what we saw was a mass exodus from retail."

Non-domestic equity fund inflows of $171.4 billion and Treasury fund inflows of $34 billion for the year are the largest on records dating to 1992. Emerging market inflows were the biggest since 2010, Lipper's preliminary data showed.

That cash from U.S. investors is helping keep bond yields and borrowing costs low worldwide.

Yet the domestic equity outflows are not universal.

Exchange-traded funds (ETFs), many of which track an index and charge lower fees than funds run by stockpickers trying to beat the market, had another record year of inflows.

Technology-focused equity funds pulled in about $13 billion for the year, the most since the sector's boom year in 2000, when they pulled in $41 billion, before the sector tanked.

High-yield bonds, made up of the riskiest corporate debt, have been an exception to the festive atmosphere in bonds, posting $21 billion outflows for the year, the largest since 2014.

The following is a breakdown of the flows for the latest week, through Jan. 3, including mutual funds and ETFs:

Sector Flow Chg % Assets Assets Count

($blns) ($blns)

All Equity Funds -8.397 -0.12 6,857.277 12,131

-Domestic Equities -10.797 -0.23 4,692.258 8,653

-Non-Domestic Equities 2.400 0.11 2,165.019 3,478

All Taxable Bond Funds 3.279 0.13 2,632.191 6,041

All Money Market Funds -7.094 -0.26 2,686.100 1,034

All Municipal Bond Funds -0.048 -0.01 402.705 1,474

(Reporting by Trevor Hunnicutt; Editing by Lisa Shumaker and Leslie Adler)