US equity funds post outflows as yields spike

BY Reuters | TREASURY | 01/21/22 09:48 AM EST

(Reuters) - U.S. equity funds faced outflows in the week to Jan. 19 on concerns over a rise in U.S. Treasury yields and a feeble start to the fourth-quarter earnings season.

According to Refinitiv Lipper data, investors sold U.S. equity funds of $4.5 billion, marking the first weekly outflow in five weeks.

Fund flows: US equities bonds and money market funds https://fingfx.thomsonreuters.com/gfx/mkt/mypmnbeagvr/Fund%20flows%20US%20equities%20bonds%20and%20money%20market%20funds.jpg

The U.S. 10-year Treasury yields jumped to two-year highs, which in turn battered growth stocks, as the companies' future cash flows would be worth less when discounted with higher interest rates.

Bank earnings didn't cheer investors during the week as Goldman Sachs (GS) missed quarterly profit expectations, while JPMorgan Chase & Co (JPM) warned that its return on tangible capital equity may fall below its medium-term target of 17% this year. U.S. growth funds saw outflow of $4.42 billion in a fourth successive week of net selling, however, investors secured value funds worth about $3 billion in their biggest weekly purchase in five months.

Fund flows: US growth and value funds https://fingfx.thomsonreuters.com/gfx/mkt/byvrjmymave/Fund%20flows%20US%20growth%20and%20value%20funds.jpg

Among sector funds, financials obtained inflows of $1.12 billion, while tech and consumer discretionary sector funds saw outflows of $842 million and $543 million respectively.

Fund flows: US equity sector funds https://fingfx.thomsonreuters.com/gfx/mkt/akvezekerpr/Fund%20flows%20US%20equity%20sector%20funds.jpg

U.S. bond funds witnessed $1.69 billion worth of net selling, less than the outflows of $3.15 billion in the previous week. Investors sold U.S. taxable bond funds of $1.39 billion, while U.S. municipal bond funds faced their first weekly net selling in six weeks, worth $466 million. U.S. high yield, and short/intermediate investment-grade funds faced money outgo worth $2.29 billion and $702 million respectively. However, loan participation funds, and short/intermediate government & treasury funds received inflows of $2.2 billion and $1.27 billion respectively.

Fund flows: US bond funds https://fingfx.thomsonreuters.com/gfx/mkt/lbvgnjajepq/Fund%20flows%20US%20bond%20funds.jpg

U.S. money market funds also faced outflow worth $57.07 billion, their biggest since mid-July 2020.

(Reporting by Gaurav Dogra and Patturaja Murugaboopathy in Bengaluru; Editing by Chizu Nomiyama)

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.

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