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Investors Swarm into Stock ETFs Amid "Fiscal Cliff" Hopes—Lipper

Investors in U.S.-based funds have pumped the most new money into stock exchange-traded funds since mid-September, while adding to bond funds amid growing optimism U.S. lawmakers will avoid the looming "fiscal cliff" of tax hikes and spending cuts. Data from Thomson Reuters' Lipper service showed on Thursday that Stock ETFs raked in $7.66 billion in new investor cash in the week ended Nov. 28, the most money since the week the U.S. Federal Reserve announced its extended stimulus plan.

By Sam Forgione

NEW YORK, November 29 Investors in U.S.-based funds have pumped the most new money into stock exchange-traded funds since mid-September, while adding to bond funds amid growing optimism U.S. lawmakers will avoid the looming "fiscal cliff" of tax hikes and spending cuts.

Data from Thomson Reuters' Lipper service showed on Thursday that Stock ETFs raked in $7.66 billion in new investor cash in the week ended Nov. 28, the most money since the week the U.S. Federal Reserve announced its extended stimulus plan.

Meanwhile, bond mutual funds and ETFs combined attracted $1.81 billion in investor cash, the most in three weeks and more than doubling the previous week's inflows of $670.57 million.

A large percentage of equity demand flowed into the SPDR S&P 500 ETF fund, which attracted $3.64 billion in cash, while investors latched onto emerging market stocks by pumping $1.37 billion into the iShares:MSCI Emerging Market fund.

Stock mutual funds, however, suffered outflows for the third straight week as retail investors took $280.72 million out of the funds. The amount still reflects an improvement from the previous week, when investors took $2.89 billion out of the funds, which was the most since early August.

ETFs are generally believed to represent the investment behavior of institutional investors, while mutual funds are thought to represent the retail investor.

The benchmark S&P 500 stock index rose 1.36 percent over the reporting period, despite uncertainty over whether U.S. President Barack Obama and Congress would reach a deal on the budget. President Obama's statement on Wednesday that he hoped to close a deal in four weeks boosted markets.

"There's hope that the 'fiscal cliff' (deal) will be reached sooner than later," said Jeff Tjornehoj, head of Lipper Americas Research, who also said the optimism spurred the inflows into stock ETFs.

Among bond funds, investors favored higher-quality debt and poured $965.62 million into investment-grade corporate bond funds, which accounted for more than half of the overall inflows into bond funds.

Investors who are "slow to accept the trend" into stocks favored investment-grade corporate bonds, said Tjornehoj.

Funds that hold U.S. Treasuries, meanwhile, had outflows of $208.3 million, the first loss in demand in four weeks.

"As (investors) look more approvingly at equities, they show less preference for safer assets such as Treasuries," said Tjornehoj.

The weekly Lipper fund flow data is compiled from reports issued by U.S.-domiciled mutual funds and exchange-traded funds.

The following is a broad breakdown of the flows for the week, including exchange-traded funds (in $ billions): Sector Flow Chg % Assets Assets Count ($Bil) ($Bil) All Equity Funds 7.379 0.26 2,842.856 10,000 Domestic Equities 4.923 0.23 2,131.643 7,408 Non-Domestic Equities 2.456 0.35 711.213 2,592 All Taxable Bond Funds 1.806 0.12 1,496.501 4,671 All Money Market Funds 11.383 0.49 2,331.338 1,394 All Municipal Bond Funds 0.545 0.17 323.562 1,339

Copyright 2010 by Reuters. All rights reserved.

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