Withdrawals From Stock Funds Biggest Since ’08

Investors pulled the most money from global stock funds since 2008 in the past week as the Standard & Poor’s downgrade of Treasuries and the deepening European debt crisis prompted a flight into cash and gold.

Funds that buy global equities suffered $3.5 billion in net withdrawals in the week ended Aug. 10, the most since the second week of October 2008, according to Cameron Brandt, director of research at Cambridge, Massachusetts-based EPFR Global. Investors removed $11.7 billion from funds that invest in U.S. equities, the most since May 2010 when investors pulled money following a one-day market crash that briefly erased $862 billion.

“This week had a feeling of capitulation as we saw investors running for cover,” Brandt said in a telephone interview. “The last time we saw this kind of flight to safety” was in 2008, he said.

Investors have rushed into money-market funds and gold as global equity markets lost $6.8 trillion in value since July 26. On Aug. 5, S&P downgraded U.S. debt for the first time, sending the benchmark Standard & Poor’s 500 Index down by 6.7 percent on the first trading session after the move. In Europe, riots swept across Britain and the sovereign-debt crisis deepened in the countries that use the euro.

Earnings at asset-management firms will be cut by 5 percent to 15 percent in 2012 as a result of investors’ reaction the market selloff, Daniel Fannon, an analyst with Jefferies & Co. in San Francisco, wrote in a note to clients today.

‘Lingering Impact’

Affiliated Managers Group Inc. (AMG) and T. Rowe Price Group Inc. will be “hardest hit” because they have more stock funds, he wrote. Franklin Resources Inc. will see the least impact because of its sizable global fixed-income business, according to Fannon.

“This latest market correction will doubt have a lingering impact on investor sentiment and risk appetites,” Fannon wrote.

Stocks in Standard & Poor’s asset manager and custody bank index have declined about 5 percent since Aug. 5, compared with the 1.2 percent decline in the S&P 500.

U.S. money funds attracted $61 billion in the week ended Aug. 9, according to data from iMoneyNet in Westborough, Massachusetts. Gold and precious metals funds drew $2.1 billion in the past week, EPFR said.

The S&P 500 recovered some losses as it rose 4.6 percent yesterday and 1.1 percent as of 1:42 p.m. today in New York.

To contact the reporter on this story: Sree Vidya Bhaktavatsalam in Boston at sbhaktavatsa@bloomberg.net

To contact the editor responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net

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