US equity funds see biggest outflows of 2012 US equity funds suffered their worst outflows of the year in the week to Wednesday as investors became decisively risk-averse following a five-day losing streak for US equities. The S&P 500 fell 4.3 per cent in the five trading days to Tuesday, giving back a third of its gains from a stellar first quarter, although it has since regained some of that ground. Investors responded by withdrawing more than $7bn from US exchange-traded and mutual funds that invest in equities, the largest outflow since mid-December, and equivalent to almost 1 per cent of the assets invested in such funds, according to data from Lipper. It was the third successive week of outflows from equity funds and by far the largest. "The previous two weeks" outflows were partly down to profit-taking, but the five days of S&P 500 losses was the first big challenge to the equity market this year," said Matthew Lemieux at Lipper. The outflow shows a lot of investors are worried about a repeat of 2010 and 2011, when the first quarter was very strong, but [the market] dipped afterwards. Fund flow data are closely watched by many investors as an indicator of sentiment, although they do not always indicate a market has peaked. The last time equity funds suffered three weeks of withdrawals was in early October last year, when the market was at its lowest level in a year and about to begin a 20 per cent rally to post-financial crisis highs. Some analysts are more concerned by bearish signals from fixed income investors. Exchange traded and mutual funds that buy so-called junk bonds or high-yield debt issued by non-investment grade companies also suffered net outflows of nearly $1.3bn in the week to Wednesday, the first net redemption since mid-November. Junk bonds have benefited this year as investors flocked to the highest yielding assets as official rates remain near zero. A Barclays index of junk debt has returned 4.8 per cent this year. "Profit-taking by equity investors is not surprising after the strong run, but we have to pay attention to what credit markets are indicating," said Quincy Krosby at Prudential Financial. High yield in particular can be a canary in the coal mine, which very often indicates changes in sentiment about future growth prospects.