U.S. stock, bond fund inflows slowed in week before steep selloff

By David Randall

NEW YORK (Reuters) – U.S. fund investors’ appetite for stocks and fixed income weakened sharply last week ahead of the largest decline in the benchmark in more than six years, Investment Company Institute (ICI) data showed on Wednesday.

Some $4.3 billion rolled into U.S.-based stock funds and exchange-traded funds in the week ended Jan. 31, a 65 percent drop from the week before. Bond funds meanwhile took in $9.2 billion, down 38 percent from a week earlier, ICI said.

Rising interest rates and concerns about inflation have brought volatility back into the stock market after a long period of calm, leaving investors more skittish after a year in which the S&P 500 rose 19 percent.

Yields on benchmark 10-year Treasury bonds, which help set the rate for consumer loans ranging from auto to mortgages, touched four-year highs last week, raising borrowing costs for consumers and companies.

“We are reminding clients that inflation is going to come back into the economy and that there are some benefits to having a well-diversified portfolio,” said Jeff Carbone, a managing partner at Cornerstone Wealth, a Huntersville, North Carolina based financial adviser with $1.3 billion in assets under management.

At the same time, U.S. valuations were looking high before the selloff that cumulated in the 4 percent drop in the S&P 500 on Monday, leaving investors looking at other opportunities, he said.

World stock funds took in $7.9 billion during the most recent week, down 20 percent from the week before, according to ICI data. Flows to municipal bonds were $1.8 billion, down from the $2.4 billion that flowed into the category the week before.

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