Investors became more cautious in the last week of February, pulling cash from U.S. stock mutual funds for the first time this year. Worries about government gridlock in the U.S. and Italy weighed on investors, who continued to add cash to bond funds, as well as funds investing in foreign stocks.
Investors withdrew a net $1.13 billion from funds investing in U.S. stocks during the weeklong period ended Feb. 27, the Investment Company Institute said in a preliminary report Wednesday. That snapped a seven-week string in which deposits exceeded withdrawals, including $1.09 billion in net deposits during the period ended Feb. 20. Nearly $22 billion was added to U.S. stock funds during that seven-week stretch, marking a turnaround in investor confidence. Before the period ended Jan. 9, cash had been pulled out each week since mid-July.
In late February, investors apparently became worried ahead of the March 1 deadline that triggered automatic, across-the-board federal spending cuts, said Tom Roseen, an analyst with the research firm Lipper, which also tracks fund flows.
Roseen also cited political gridlock in Italy. A closely contested Italian election complicated efforts to restore confidence in Europe's shared currency, the euro. In the U.S., stocks recorded their worst one-day session of the year on Feb. 25.
U.S. investors appeared ready to take profits by pulling cash from stock funds after the market's strong gains in January and early February, Roseen said. The Standard & Poor's 500 index was up nearly 8 percent for the year through Tuesday, and the Dow Jones industrial average climbed to a record high.
In the period ended Feb. 27, investors continued to add cash to funds investing primarily in foreign stocks, extending the streak of net deposits in that category to eight weeks. A net $2.18 billion was added to foreign stock funds, below the previous week's $3.47 billion in net deposits, according to ICI, a fund industry trade organization.
Bond mutual funds have consistently attracted cash in recent years, a trend that has extended into 2013. Investors deposited a net $4.99 billion into bond funds during the period ended Feb. 27, up from $4.71 billion in the previous week.
During the latest week, a net $4.41 billion was deposited into taxable bond funds, which primarily invest in corporate bonds. Investors added $579 million to municipal bond funds, which invest in bonds issued by state and local governments.
A net $2.39 billion was deposited into hybrid funds, which invest in both stocks and bonds.
Overall, investors deposited a net $8.43 billion into long-term mutual funds of all types during the week. That was down from net deposits of $11.29 billion in the previous week.