Markets

U.S. Equity Fund Sell-Off Tops $46B What's Next?

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The U.S. equity mutual funds market witnessed the largest weekly sell-off between Dec 5 and 12, with investors redeeming $46 billion amid macroeconomic fears, per a report by Lipper. The data comes at a time when an ongoing stock market sell-off has pushed the broader S&P 500 index into correction territory.

The figure indicates the increasingly defensive position opted by investors as this record outflow is double the weekly sell-off of any other week on record. In contrast, money-market funds that are comparatively less risky roped in $81 billion, the research firm cited. This cash inflow also happens to be the highest recorded since 1992.

What Triggered the Sell-Off?

Lipper said that the sell-off was a result of concern over a rising number of macroeconomic issues. Uncertainties regarding U.S.-China trade resolution, Italian budget negotiations, Brexit, a rising interest rate environment, increasing returns on short-term government bonds and high corporate borrowings alarmed investors over the past week.

The stock market volatility in recent times could also be one of the leading factors, according to consensus. Market turbulence has triggered huge losses for investors in both stock and bond funds this year, which can be deemed unusual.

Transitory Factors Could Lead Inflows in the Long Run

While macroeconomic factors remained a setback for investors, seasonal factors such as various major funds going ex-dividend last week could point toward inflows in the near future. Some of the big names in the stock mutual fund market paid out capital gains and income distributions for 2018, which means that these fund houses are free of liabilities and so a large part of the pay-out could be reinvested soon.

By the way, investors are pulling money out of U.S. equity mutual funds in order to reduce their capital-gains taxes for the year. But then again this is also a seasonal trend. So, it's widely expected that investors will eventually pour money in these funds once this transitory factor is over.

Some of the dividend-paying funds that may benefit from the aforesaid seasonal trend are Vanguard High Dividend Yield Index VHDYX and BlackRock Equity Dividend MADVX , both of which carry a Zacks Rank #2 (Buy), and Fidelity Equity Dividend Income FEQTX , which carries a Zacks Rank #3 (Hold).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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