U.S. fund investors 'buy the dip' in stock, bond markets
(Adds data on funds, analyst quote, table, byline) By Trevor Hunnicutt NEW YORK, Feb 1 (Reuters) - U.S. fund investors cashed out of cash funds and stocked up on stocks in the latest week, ignoring a setback in markets and taking on more risk, Lipper data showed on Thursday. Relatively low-risk money-market funds recorded $26 billion in withdrawals during the week ended Jan. 31, while stock mutual funds and exchange-traded funds (ETFs) took in a combined $16 billion in new money, according to the research unit. "People are believing this is not going to be a melt-down. They are still talking about a melt-up," said Tom Roseen, head of research services for Thomson Reuters' Lipper unit. "But is it too late to the party?" The Dow Jones Industrial Average turned in its worst two-day percentage performance since September 2016 on Monday and Tuesday. But the 2 percent decline is minor in light of its 208 percent liftoff - a total return figure that includes dividends - since the end of 2009. Roseen said many of those gains are being validated by strong quarterly earnings results and upgraded analyst estimates. Four in five S&P 500 companies reported fourth-quarter 2017 profits above Wall Street's forecasts, according to Thomson Reuters I/B/E/S. Investor behavior is changing. U.S. fund investors sitting on strong equity gains sold domestic stocks for three years straight from 2015 to 2017, for a total of $255 billion in outflows. So far this year, the funds have taken in nearly $31 billion, according to Lipper. Investors cited a dramatic spike in bond yields as one of the reasons equities pulled back this past week. Financial and bank-focused funds pulled in the most cash for the week, $820 million, which makes sense given that those companies profit from lending at higher long-term rates. Yet even debt funds, which lose money from a rising-rate scenario, are taking in cash. Bond funds pulled in nearly $4 billion during the week, Lipper said, including the largest inflows since September for Treasury funds, $1.2 billion. Roseen said he is concerned that investors have become complacent on bonds after years of mostly positive returns. "Certainly, we've haven't had this experience in years now where we've seen interest rates rising. So I think people are going to have to adjust their mantra," said Roseen. "Until now you couldn't go wrong with fixed income." The following is a breakdown of the flows for the week, including mutual funds and ETFs: Sector Flow Chg Pct of Assets Count ($ blns) Assets ($ blns) All Equity Funds 16.158 0.22 7,172.293 12,178 -Domestic Equities 9.397 0.19 4,891.641 8,686 -Non-Domestic Equities 6.761 0.29 2,280.653 3,492 All Taxable Bond Funds 3.611 0.14 2,664.293 6,063 All Money Market Funds -25.992 -0.97 2,649.474 1,022 All Municipal Bond Funds 0.236 0.06 402.963 1,472 (Reporting by Trevor Hunnicutt; editing by Jennifer Ablan and Lisa Shumaker)