Ultra-short obligation funds attract inflows ahead of Fed: Lipper

By Jennifer Ablan

NEW YORK (Reuters) – Investors took on a defensive approach ahead of next week’s Federal Reserve meeting, pouring money into ultra-short obligation funds as well as equity and fixed-income exchange-traded funds, Lipper data showed on Thursday.

The ultra-short obligation funds (USO (NYSE:)) peer group, which are used to offset interest rate risk, had net inflows of $614 million in the week ended Wednesday, their 28th straight week of net inflows, said Patrick Keon, senior analyst at Thomson Reuters Lipper.

The market views as a near certainty that the Fed will hike interest rates by 25 basis points when it meets on Tuesday and Wednesday next week, based on fed fund futures.

Exchange-traded funds – beloved for the ease and speed with which they can be bought and sold – took in more than $4.2 billion, marking the 11th time in 12 weeks that they took in new net new money. Taxable bond ETFs, which attracted $2.2 billion, and equity ETFs, which attracted $2 billion, were responsible for the overwhelming majority of the net inflows, while muni debt ETFs contributed $36 million to the total intake, Lipper said.

The SPDR Bloomberg Barclays (LON:) High Yield Bond ETF, which nabbed over $700 million, and the iShares 20+ Year Treasury Bond (NASDAQ:) ETF, which attracted over $256 million, had the largest individual net inflows on the taxable bond side of the ledger. The SPDR S&P 500 ETF (NYSE:) posted the largest inflows for equity ETFs with more than $2.7 billion in net new cash, according to Lipper.

In comparison, mutual funds have suffered net outflows in seven of the last 12 weeks. Equity mutual funds posted outflows of more than $1 billion in the week ended Wednesday, marking the group’s 13th consecutive week of net outflows, Lipper said. Domestic equity funds were responsible for all the net outflows, with investors pulling more than $1.3 billion, while nondomestic equity funds took in $257 million of net new money, Lipper said.

The largest net outflows among domestic equity funds belonged to the large-cap core funds peer group at $499 million, while global equity income funds had the largest net inflows for non-domestic equity funds at $589 million.

Overall, money market funds drove the overall net outflows for the week, with more than $19.5 billion of cash withdrawals, “but we’ve come to expect this level of movement from this asset group,” Keon said. “This is evidenced by the fact that the money market peer group has had eight weeks this year in which the net flows were over $20 billion – which includes both net inflows and net outflows.”

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