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Stock funds continue to bleed despite QE3

September 27, 2012: 10:43 AM ET

The retreat from U.S. stocks continued last week, with investors pulling $4.8 billion of domestic stock mutual funds.

Mutual fund investors shrugged their shoulders at the Federal Reserve's latest ploy to stimulate the sluggish economy.

In the first week following the Fed's launch of a third round of quantitative easing, or QE3, investors yanked $4.8 billion from U.S. stock mutual funds, according to data from the Investment Company Institute. That was the quickest pace of outflows since early August.

The acceleration of the exodus from stock mutual funds is curious, as the Fed's policy aims to prop up the economy by keeping interest rates low to support the housing market and boost the stock market.

The week's retreat brings the 2012 outflow total to nearly $87 billion.  By comparison, those funds lost in the neighborhood of $67 billion during the first nine months of 2010, and $83 billion during the first nine months of 2011.

Related: Federal Reserve policies favor the rich

While bailing out of stocks, investors continued to plow into bonds. The data showed that bond funds raked in $8 billion during the week ended Sept. 19.

Following the Fed's QE3 news, bond king Bill Gross, founder of investing firm Pimco and manager of the world's largest bond fund, warned over Twitter that "central banks are where bad bonds go to die." In fact, Gross cut the holdings of Treasury bonds in the Pimco Total Return Fund (PTTRX) leading up to the Fed's widely-anticipated QE3 announcement earlier this month.

Meanwhile, the ICI data showed that hybrid funds, which invest in both stocks and bonds, continued to remain in favor, attracting more $1.6 billion last week.

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Hibah Yousuf
Hibah Yousuf
Reporter, CNNMoney

Hibah Yousuf is a reporter at CNNMoney, where she covers stocks, bonds, commodities and currencies trading across the globe, as well as corporate earnings and other markets-related news. Prior to joining the site in 2009, she interned at Money Magazine.

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