US investors flee to money market funds in the week ended May 19

US money market funds lured massive inflows in the week ended May 19 as investors turned risk averse on concerns over higher inflation levels and chances that the Federal Reserve might scale back its monetary support measures.

Refinitiv Lipper showed US money market funds received a net inflow of $25.34 billion, a four-fold increase over the previous week.

US inflation-protected bonds also were in demand, as they received inflows worth $1.37 billion.

The US Fed minutes published this week said “a number” of officials thought that if the recovery holds up, it might be appropriate to “begin discussing a plan for adjusting the pace of asset purchases”.

Overall, US bond funds obtained $2.83 billion, the lowest in 10 weeks, with taxable bond funds getting inflows of $2.15 billion and municipal bond funds receiving $485 million.

On the other hand, US equity funds witnessed outflows worth $5.43 billion, with growth stocks accounting for a majority of the selling.

In particular, US tech funds had a net selling of $2.1 billion in the week.

Growth stocks are hit the most when there are increased expectations of higher inflation and interest rates, as they lower the present value of future cash flows, making the stocks less attractive.

However, cyclical sectors such as financial and mining sector funds had inflows of $1.29 billion and $403 milliion respectively.