Biggest withdrawal in four months hits U.S. domestic stock funds: ICI

By Trevor Hunnicutt

NEW YORK (Reuters) - U.S. fund investors walloped domestic equities with the most selling in four months, using the proceeds to buy cheaper stocks abroad that could thrive in a global economic expansion, Investment Company Institute (ICI) data showed on Wednesday.

Nearly $9.6 billion tumbled out of funds focused on U.S. stocks during the week ended Dec. 20, the most in any week since August, while their counterparts focused outside the country took in $8 billion in their best showing since June, the trade group said.

U.S. President Donald Trump on Friday signed into law the largest tax overhaul since the 1980s, which slashes the corporate rate from 35 percent to 21 percent.

That benefit for corporations has stimulated further gains for domestic stocks, but investors have been buying abroad instead, searching for a potentially better value, especially if growth accelerates in Japan, Europe or emerging markets, too.

"I'm more optimistic than I have been in several months," said Tom Stringfellow, chief investment officer at Frost Investment Advisors.

"The emerging markets are not as risky as we anticipated, Europe is getting traction."

Money is also typically shifted in the final weeks of the year in an effort to minimize taxes. Some investors, for instance, sell securities at a loss to decrease their tax liabilities.

"As we shift into a lower-tax regime in 2018, especially for corporations, we have been observing clients engaging in more aggressive tax-loss selling before lower tax rates kick in next year, because tax losses are more valuable in a higher tax environment," said Scott Minerd, global chief investment officer at asset manager Guggenheim Partners LLC, in a note distributed to clients.

Bond funds pulled in $1.6 billion, the least amount of cash in five weeks, but still enough to record a 52nd straight week of inflows and nearly a full year without a single week of withdrawals, according to ICI. Funds that invest in commodities, such as gold or oil, posted $434 million in outflows, the most since July.

Overall, domestic equity funds are on pace to post outflows for the third straight year in 2017, according to Thomson Reuters' Lipper unit, while debt and non-domestic stock funds are strongly positive on the year.

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Much of the year-end reallocation is benefiting exchange-traded funds (ETFs), which typically track segments of the market relatively cheaply. ICI said ETFs took in nearly $11 billion during the week, compared to outflows of nearly $14 billion for mutual funds, which typically charge a higher fee and attempt to beat the market.