U.S. investors retreat from equity funds on rate cut uncertainty

By Thomson Reuters Feb 23, 2024 | 7:34 AM

(Reuters) – U.S. investors were net sellers of equity funds in the week to Feb. 21 as stubborn inflation reduced expectations the Federal Reserve would deliver a rates cut soon.

They sold U.S. equity funds worth about $4.86 billion on a net basis during the week in contrast to about $7.82 billion in net purchases in the prior week, data from LSEG showed.

Higher than expected readings on U.S. producer, and consumer prices last week led the market to cut its bets on an early start to the Federal Reserve’s easing cycle, leading to profit-booking in riskier mutual funds.

The S&P 500 index still marked a record 5094.39 on Thursday, buoyed by chipmaker Nvidia’s forecast for a near tripling in first-quarter revenue driven by strong demand for its AI chips.

In terms of fund categories, U.S. equity large-cap, multi-cap, and mid-cap funds experienced significant withdrawals, with net disposals amounting to $3.13 billion, $1.25 billion, and $801 million respectively. In contrast, small-cap funds attracted $1.88 billion in net inflows.

Sector-specific funds also saw a retreat, as investors withdrew approximately $1.87 billion. The healthcare, consumer staples, and metals & mining sectors were the most affected, recording net outflows of around $449 million, $311 million, and $255 million, respectively.

At the same time, demand for U.S. bond funds cooled during the week as they received $1.07 billion on a net basis, the smallest amount in eight weeks.

U.S. short/intermediate investment-grade funds received $2.25 billion, the tenth weekly inflow in a row, but general domestic taxable fixed income, and inflation protected funds witnessed outflows of $563 million and $199 million, respectively.

U.S. money market funds also faced a downturn, with $9.68 million in net selling, marking the third consecutive week of outflows.

(Reporting by Gaurav Dogra and Patturaja Murugaboopathy in Bengaluru; editing by Barbara Lewis)