U.S. equity funds see vast outflows on rate hike worries

U.S. equity funds recorded a surge in outflows in the week to Oct. 5, as reports showing firm labour market demand and persistent core inflation stoked fears that the Federal Reserve will remain aggressive in raising interest rates.

Investors sold U.S. equity funds worth a net $7.09 billion after disposing of a net $4.63 billion in the previous week, data from Refinitiv Lipper showed.

During the reported week, personal consumption expenditures (PCE) price index data showed a rise of 0.3% in August, after dipping 0.1% in July. A report showing that employment surged in September also raised expectations of more hikes.

Investors were also cautiously awaiting a closely watched monthly nonfarm payrolls report due on Friday.

U.S. growth funds suffered $8.62 billion worth of net selling, the biggest weekly outflow since Jan 26, while value funds recorded withdrawals worth $1.3 billion.

Among U.S. sector funds, investors exited health care and financials funds worth $733 million and $224 million respectively but purchased consumer discretionary funds of $331 million.

Meanwhile, bond fund outflows eased to a three-week low of $908 million, the data showed.

Investors purchased high yield funds of $2.62 billion after six weeks of selling in a row, although short/intermediate investment-grade and loan participation funds recorded disposals of $3.13 billion and $1.07 billion respectively.

U.S. government bond funds remained in demand for a sixth straight week, securing a net $4.88 billion.

Meanwhile, investors drew $16.57 billion out of money market funds after two straight weeks of net buying.